The program will combine previously separate markets for mortgage-backed securities known as TBAs. Proponents say it will lower mortgage interest rates.

Federal regulators on Monday announced a major new mortgage-backed securities program that they believe should save taxpayers money.

The new program, called the Uniform Mortgage-Backed Security (UMBS), is a product of the Federal Housing Finance Agency (FHFA). It will unify two important mortgage-backed securities issued by Fannie Mae and Freddie Mac, the nation’s two largest guarantors of housing securities products, which are then purchased by investors and re-sold (traded).

In this case, the program has to do with a type of mortgage-backed security known as a TBA, which is short for “to be announced.” Essentially, a TBA is an agreement to either buy or sell a mortgage-back security at some future date. People (or entities) trading TBAs agree on certain aspects of the deal, such as price, but don’t initially specify which actual mortgage-backed securities will be bundled in the deal.

In the past, Fannie Mae and Freddie Mac ran separate TBA markets, which were worth $2.4 trillion and $1.1 trillion, respectively. However, regulators wanted to bring those two markets together in hopes of pulling up the value of Freddie Mac’s market, and that’s precisely what the new UMBS aims to achieve.

“The goal of this project, this initiative, has been to increase the overall liquidity of the [mortgage-backed security] market by bringing two TBA’s together,” FHFA Deputy Director Robert Fishman further explained Monday during a call with reporters.

Fishman also said that bringing these two markets together should reduce pricing disparities in the TBA markets and, ultimately, “save taxpayer money” via accounting efficiencies. Fishman declined to say during the call just exactly how much money the new program should save, though Housing Wire, citing previous comments from FHFA, reported that it could be between $400 million to $600 million per year.

Perhaps most importantly for brokers, agents and their clients, Fannie Mae and Freddie Mac will use the new UMBS to finance fixed-rate mortgages for residential properties that have between one and four units.

Previously, when a borrower/homeowner paid their monthly mortgage, Freddie Mac paid back the investors who bought into a corresponding security backed by said mortgage, after a delay of 45 days. However, the new UMBS will pay back investors in 55 days, which corresponds with Fannie Mae’s current securities payment timeline.

Investors still holding old Freddie Mac 45-day securities certificates (known as Fixed-Rate Gold PCs) will receive an extra “fair value” compensation for the 10-day-delay when they exchange them for a new 55-day payout UMBS, according to documentation posted online by Fannie Mae.

The hope is that by syncing up the payment timelines for investors in both Freddie and Fannie securities, and issuing one new type of security, it will result in a higher average trading volume for all mortgage-backed securities from these entities, in a market where Fannie Mae has historically dominated since about mid-2011, as Bloomberg reports.

If all goes according to plan, it could mean more money flowing into the secondary mortgage market and ultimately, more home financing options at lower interest rates for prospective buyers. But critics worry the plan to combine the two types of securities could result in them all being valued lower to investors, which would mean higher interest rates for borrowers.

The move to combine the TBA markets of Fannie Mae and Freddie Mac comes amid a larger push to broadly reform the two entities. Perhaps most notably to real estate practitioners, the National Association of Realtors floated the idea in February of entirely replacing Fannie and Freddie with a private organization that could be regulated like a utility.

Though relatively obscure among most consumers, the project to create the UMBS has been in the works since at least 2012. Officials have already been prepping investors for the launch of the combined TBA market for months, and during Monday’s phone call Freddie Mac senior vice president Mark Hanson said that “all signs are quite positive at this stage in the market.”

“We think the market is ready and now it’s just a matter of implementing and getting back to the new normal,” Hanson added.

Renee Schultz, a senior vice president at Fannie Mae, also said during the call that the new UMBS is a “major milestone for our industry.”

Email Jim Dalrymple II

How do you stay ahead in a changing market? Inman Connect Las Vegas — featuring 250+ experts from across the industry sharing insight and tactics to navigate threat and seize opportunity in tomorrow’s real estate market. Join more than 4,000 top producers, brokers and industry leaders to network and discover what’s next, July 23-26 at the Aria Resort. Hurry! Tickets are going fast, register today!

Thinking of bringing your team? There are special onsite perks and discounts when you buy tickets together. Contact us to find out more.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Main Text123Button×
Non members updateNo MEMBERS1234×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription