Page 35 - July-August 2018 GSE Report Flip Book

FANNIE MAE AND FREDDIE MAC JJUALN. U- ARUYG. 22001188
An update on the Single-Security Initiative
In Rev. Rul. 2018-28, the IRS stated that the conversion of Freddie Mac participation certificates for the GSEs’ new uniform MBS will not constitute a taxable exchange of property for tax purposes. Treasury had strongly endorsed the GSEs’ single-security initiative and stated they expected the IRS to issue a favorable interpretation on the issue. Tax code provisions addressing the exchange of property provide a broad exemption if the modification of the debt instrument results in a change of less than 25 basis points in the asset’s yield. (Inside Mortgage Finance, John Bancroft, 08/28/18)
In August, Freddie Mac began issuing new 55-day “mirror” mortgage-backed securities for the current population of exchange 45-day Freddie Mac Gold Participation Certificates (PCs) and Giant PCs to facilitate the implementation of the Single Security Initiative on June 3, 2019. “We believe the early issuance of mirror securities will enable market participants to both analyze their holdings and build in pricing and disclosure in advance of the official exchange offer next May,” said Mark Hanson, Freddie’s SVP of securitization. “This is an important step toward the implementation of the Single Security Initiative in June 2019, paving the way for a combined Freddie Mac and Fannie Mae $3.5 trillion market of a To-Be-Announced Uniform Mortgage- Backed Security. (Press Release, Freddie Mac, 08/02/18)
Tradeweb, the electronic financial marketplace, is developing a direct-to-Freddie Mac exchange path for institutional investors for the upcoming GSE’s Single Security. “This arrangement will allow investors to use the Tradeweb platform and pursue a familiar approach to exchange their eligible Freddie Mac mortgage-backed securities,” said Michael Hutchins, Freddie’s EVP of investments and capital markets. Tradeweb has facilitated electronic trading in mortgage products for over fifteen years,” said Billy Hult, president of Tradeweb Markets. “We are particularly well suited to connect leading institutions that are active in the mortgage market to Freddie Mac in order to enable efficient exchanges.” (HousingWire, Jacob Gaffney, 08/31/18)
FHFA releases its stress tests for Fannie Mae and Freddie Mac
In its report on the results of stress tests on the GSEs, the Federal Housing Finance Agency wrote:
In the Severely Adverse scenario incremental Treasury draws are projected to range between $42.1 billion and $77.6 billion, depending on the treatment of deferred tax assets. The remaining funding commitment under the PSPAs after these projected draws would be $212.0 billion without establishing valuation allowances on deferred tax assets, or $176.5 billion if both Enterprises established valuation allowances on deferred tax assets.
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