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The Securities Industry and Financial Markets Association (SIFMA) announced today that it will soon publish an update to the “Standard Requirements for Delivery on Settlements of Fannie Mae, Freddie Mac and Ginnie Mae Securities,” also known as the “Good Delivery Guidelines.” The guidelines detail a number of market practice standards developed over the last three decades regarding To-Be-Announced (TBA) trading of Mortgage-backed Securities (MBS) pools issued by Government Sponsored Enterprises (GSEs) and Ginnie Mae.
The TBA market facilitates the forward trading of MBS issued by GSEs and Ginnie Mae by creating parameters under which mortgage pools can be considered fungible and thus do not need to be explicitly known at the time a trade is initiated – hence the name “To Be Announced.” The TBA market is the most liquid, and consequently the most important secondary market for mortgage loans.
The guideline updates will reflect the decision by SIFMA to keep the maximum TBA eligible original loan balance at current levels and clarify several long standing market practices for good delivery. The current maximum original balance allowable for a loan on a one family property in a TBA eligible Fannie Mae or Freddie Mac pool is $417,000 in most states. However, in Alaska, Hawaii, Guam and the U.S. Virgin Islands the limit rises to $625,500. Higher balance loans which are now temporarily eligible for Federal Housing Authority (FHA) and GSE guarantee programs under H.R. 5140, the Stimulus Package, will not be eligible for inclusion in TBA-eligible pools. They are instead expected to be securitized under unique pool codes for trading on a “specified pool” basis or inclusion in Real Estate Mortgage Investment Conduit (REMIC) transactions.
“SIFMA views this methodology as the most expeditious and least disruptive option currently available to facilitate securitization and secondary market activity for the higher balance loans, bringing added liquidity and rate relief to higher balance loan borrowers while not imposing additional costs or impairing the liquidity for loans falling within the pre-existing loan limits,” said Sean Davy, managing director of SIFMA’s MBS and securitized products division.
The importance of the continued liquidity and smooth functioning of the current conforming loan market must be underscored in this time of broad disruption to financial markets. Fourth quarter 2007 data show that Ginnie Mae and GSE MBS issuance represented over 80 percent of total MBS issuance, providing a vital source of financing for many mortgage borrowers.
SIFMA expects the
revised guidelines to also more explicitly define the characteristics of the
“standard” loans which are acceptable for inclusion in TBA-eligible MBS pools.
Concurrently, the revision will implement modifications to the “non-standard”
loans section to codify existing market practice and further delineate which
non-standard loan products are eligible. SIFMA believes that these
enhancements will improve the transparency of the TBA market.
