SIFMA approves changes to allow forward delivery of loans for UMBS

The Securities Industry and Financial Markets Association approved changes to its good delivery guidelines that ease the path to the government-sponsored enterprises issuing uniform mortgage-backed securities starting on June 3.

The to-be-announced market is an MBS forward trade where the commitment is made prior to the actual delivery date of the loans.

"The TBA Guidelines Advisory Council met [on March 5] to discuss a single security and voted on changes to the good delivery guidelines to enable trading of UMBS under these guidelines," a statement from SIFMA said. "The TBA Committee approved by a significant majority the revisions to the good delivery guidelines effective for trades with trade date on or after March 12, 2019, and settlement date on or after June 3, 2019. UMBS issuance by Fannie Mae and Freddie Mac is expected to begin on June 3. As we move towards a single security, SIFMA supports efforts to ensure maximum liquidity in UMBS trading."

With these changes, UMBS and Supers — a single class resecuritization of UMBS — are good for delivery into the TBA market.

Freddie Mac is set to issue its first 55-day TBA-eligible UMBS on June 3, a press release said.

There were some concerns regarding different prepayment speeds between Fannie Mae and Freddie Mac MBS, but "the deeper liquidity in agency MBS as a result of UMBS possibly being supportive of the mortgage basis longer-term," a report from Keefe, Bruyette & Woods said.

The SIFMA action follows the Federal Housing Finance Agency's issuance of its final rule for the UMBS.

Freddie Mac Gold PC and Giant securities will no longer be good for delivery into the TBA market. It will stop issuing new Gold PCs with a 45-day payment delay after May 31.

Starting May 7, Freddie Mac will offer holders of 45-day TBA eligible and non-TBA-eligible PCs and Giants the option to exchange those for 55-day Freddie Mac mirror securities.
Freddie Mac's retained portfolio will book its first exchange transaction later this month.

Fannie Mae started accepting forward UMBS delivery on March 12, it said in a press release. Freddie Mac also is accepting forward delivery starting March 12, a spokesman said.