• HOME
  • solutions
    • RECURSION ANALYZERS
    • Mortgage Company Data
    • Recursion DataCloud
    • Customized Solutions
  • BLOG
  • CLIENT LOGIN
    • Recursion Analyzers
  • ABOUT US
    • OVERVIEW
    • OUR TEAM
    • News & Events >
      • Recursion In News
      • Recursion Data Citations
  • CONTACT
RECURSION CO
  • HOME
  • solutions
    • RECURSION ANALYZERS
    • Mortgage Company Data
    • Recursion DataCloud
    • Customized Solutions
  • BLOG
  • CLIENT LOGIN
    • Recursion Analyzers
  • ABOUT US
    • OVERVIEW
    • OUR TEAM
    • News & Events >
      • Recursion In News
      • Recursion Data Citations
  • CONTACT
BLOG

The Distribution of Federal Reserve MBS Holdings and the Commingling Fee

2/9/2023

 
It is well known that since June 1, 2022, the Federal Reserve has allowed MBS to mature off its balance sheet without replacement[1]. Consequently, the portfolio has declined, but at a very modest pace since high-interest rates have eliminated most of refinance activities:
Picture
run underlying query
As can be seen, the Fed's GSE holdings have declined, with the share of balances held by the central bank falling by a modest 1.2% from May 31, 2022, to 31.2% at the end of 2022.

Shortly after the policy was implemented, the two Enterprises announced that they would impose a 50-basis point fee on Supers and REMIC securities that commingle Fannie Mae and Freddie Mac UMBS collateral[2] as of July 1, 2022. As one might expect, the volume of such transactions declined. The chart below looks at this from the perspective of direct exposures. The chart for exploded exposures looks quite similar and is therefore not included:
Picture
run underlying query
Previously, we have written about the characteristics of the MBS Fed holdings and how these compare to the overall market[3]. In October, the Fed announced that it would be consolidating its holdings in order to "reduce administrative costs and operational complexity"[4]. They call this process "CUSIP consolidation." There is this interesting statement:

"The Desk will aggregate the Freddie Mac MBS held in the SOMA that were issued prior to June 2019 and have a 45-day payment delay. These Freddie Mac MBS are not eligible to be commingled with 55-day payment delay UMBS in an aggregated CUSIP. Fannie Mae securities issued prior to June 2019, and both Fannie Mae and Freddie Mac securities issued after June 2019 have 55-day payment delays and are eligible for commingling and will not be aggregated at this time."
​

Note that as these legacy securities are not UMBS eligible, this commingling activity is not subject to the 50 basis point fee. Below find a summary table of how this activity has impacted the central bank's portfolio:
Picture
So far, the central bank has aggregated $134.3 billion in Freddie Gold securities, leaving just $747 million available. So the new pools are just about 6.5% of the entire central bank’s GSE portfolio. We note that the coupon distribution of the new securities is very close to the underlying pools.

The question we are facing at the present moment is: what now? As it turns out, on January 19, FHFA announced it will be cutting the commingling fee from 0.50% to 0.09375% beginning April 1, 2023[5]. In its original statement, the Fed stated that once it had depleted the supply of Freddie Golds to aggregate that "…decisions about any additional aggregations will be communicated at a future date.[6]" Indeed. Any such communication will be very interesting. Will the Fed just go ahead commingling other securities and pay a 0.5% tax to the GSE regulator? Will it wait until April when the fee goes down? Or something else altogether?
​
It's interesting to read the statements of the two entities and realize they are talking about similar topics while never mentioning the other. Again, in its original statement[7], the Fed tells us that "No inferences should be drawn about future monetary policy actions from these aggregations." We have no reason to doubt this statement, but it is certainly the case that should the Fed decide to someday outright sell its holdings of MBS it will be much easier to implement starting from a position of a large portfolio with few CUSIPs.

[1] https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504b.htm
[2] https://capitalmarkets.fanniemae.com/mortgage-backed-securities/new-fee-structure-certain-structured-transactions and 
https://capitalmarkets.freddiemac.com/mbs/docs/f411news.pdf ​
[3] https://www.recursionco.com/blog/rolling-vs-selling-off-the-feds-portfolio
[4] https://www.newyorkfed.org/markets/opolicy/operating_policy_221006
[5] https://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-from-FHFA-Director-Sandra-Thompson-on-Reduced-Upfront-Fee-for-Commingled-Enterprise-Securities.aspx
[6] Ibid, footnote 4
[7] Ibid, footnote 4

    Archives

    March 2023
    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    May 2019
    March 2019
    February 2019

    Tags

    All
    Affordability
    ARM
    Bank\Nonbank
    Borrower Assistant Plan
    Cash Window
    Climate Change
    CMBS
    CMO
    Conforming Loan
    Conventional Loan
    COVID 19
    CPR\CDR\CRR\CCR
    Credit Score\DTI\LTV
    CRT\CAS\STACR
    Delinquency
    Early Buyout
    Early Payment Default
    ESG
    ET Pools
    Fannie Mae
    Fed
    FHA
    FHFA
    Forbearance
    Foreclosure
    Foreign Investor
    Freddie Mac
    Ginnie Mae
    Green Loans
    HECM
    HELOC
    HMDA
    HUD
    LMI
    Manufactured Housing
    Modified Loans
    MSR
    Multifamily
    Occupancy Type\NOO
    Partial Claim
    Payoff
    PIW
    Prepayment
    Purchase Loans
    Recursion In News
    Refi Loans
    Reperforming
    RG Pools
    Rural Housing
    Single Family
    Special Eligibility Program
    TBA Market
    TIC
    TPO
    UMBS
    US Treasury
    VA

RECURSION

SOLUTIONS ​
Recursion Analyzers
​
Mortgage Company Data
Recursion DataCloud
Customized Solutions


ABOUT US  ​
Overview
​Our team
CLIENT LOGIN   ​
Recursion Analyzers

CONTACT

224 West 30th St., Suite 303, New York, NY 10001
Contact Us

Picture
Copyright © 2022 Recursion, Co. All rights reserved.​
  • HOME
  • solutions
    • RECURSION ANALYZERS
    • Mortgage Company Data
    • Recursion DataCloud
    • Customized Solutions
  • BLOG
  • CLIENT LOGIN
    • Recursion Analyzers
  • ABOUT US
    • OVERVIEW
    • OUR TEAM
    • News & Events >
      • Recursion In News
      • Recursion Data Citations
  • CONTACT