FHFA seeks input on single Fannie, Freddie security

A top housing regulator is taking the first steps toward overhauling Fannie Mae and Freddie Mac, and is now seeking comments on how to establish a single security for both that could be traded on the market.

The Federal Housing Finance Agency (FHFA) announced Tuesday that it was requesting input on what a new, single security that could represent holdings from both Fannie and Freddie in the mortgage-backed securities market would look like.

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The regulator emphasized that the new step was the first in what would be a multi-year project but nonetheless emphasized that bringing both enterprises under a single security is a crucial step in remaking the housing market.

Currently, Fannie and Freddie issue separate mortgage-backed securities, and the FHFA and the companies agree that setting up a single security for both would boost liquidity in the market. Now, the FHFA is looking for information on how to steer through that transition with minimal market disruption.

Ever since the government stepped in to rescue Fannie and Freddie during the housing downturn in 2008, policymakers have been searching for a way to completely remodel the market. Both parties agree that the current arrangement, in which Fannie and Freddie continue to guarantee the vast majority of the nation’s mortgages while relying on a government safety net, is unsustainable.

But efforts to remake the market via legislation have stalled in Congress. The White House has avoided producing a specific plan of its own and instead has offered a range of recommendations for a remade housing market.

“The move to a single security will enable the two GSEs to compete on a more level playing field, and this competition will be beneficial to both homebuyers and lenders,” said David Stevens, president and CEO of the Mortgage Bankers Association. “In addition, it will be an important piece to help transition the market to any new future structure by providing a more flexible and efficient way of trading securities.”