The Federal Housing Finance Agency (FHFA) on Thursday announced that it would be reducing the fee on commingled universal mortgage backed securities from 50 basis points to 9.375 basis points, eliciting cheers from the mortgage industry.
“FHFA’s move to lower the fee significantly for commingled securities is a sound decision and should remove much of the friction observed in the UMBS market since the fee was implemented last summer,” Bob Broeksmit, the president and CEO of the Mortgage Bankers Association, said in a statement. “The UMBS is intended to increase liquidity in the market, but the high fee was having the opposite effect.”
The rate hike on a universal mortgage backed security stoked fury from lenders and mortgage trade groups when it went into effect in the summer, with one observer calling it a “money grab.”
Both Fannie Mae and Freddie Mac issue uniform securities despite being separate companies. They repackage existing single securities to issue what are called “supers,” which can include securities backed by either Fannie Mae or Freddie Mac loans. Effective July 1, both Fannie Mae and Freddie Mac began to charge a 50 bps fee on the portion of the security made up of the other GSE’s collateral.
In other words, as explained by Freddie Mac officials in the summer, if Freddie were to create a $500 million security from a combination of $200 million in Fannie Mae-issued commingled securities and $300 million of Freddie Mac-issued commingled securities, Freddie Mac would charge a 50 bps fee on the $200 million portion of Fannie Mae-issued collateral.
The move aligns with a portion of the new capital rule that assigns a 20% risk weight to securities issued by one GSE and included in securities created by the other. That policy is a holdover from Mark Calabria, the FHFA director under former President Donald Trump.
“While MBA continues to believe that there should not be any fee for commingled securities, we appreciate FHFA’s receptiveness to industry feedback and its willingness to make an adjustment that better reflects any perceived risk,” Broeksmit said in a statement. “We remain focused on ensuring a well-functioning UMBS market and will continue to work with FHFA, the GSEs, and industry stakeholders on this issue.”
The Community Home Lenders of America, another influential mortgage trade group, also celebrated the FHFA’s change.
“CHLA commends Director Thompson for streamlining the UMBS process by reducing fees withheld by the other GSE,” said Scott Olson, the group’s executive director.
The change is effective April 1, 2023.
