Wednesday, October 10, 2012

FHFA's MBS Platform: Building a new infrastructure for secondary mortgage market

In its October 2, 2012 white paper, the FHFA discusses how it proposes building a new information infrastructure to support the financing of mortgages in securities ranging from covered bonds to government insured securities to private label securities.

Regular readers will immediately recognize that what the FHFA is proposing building is the information infrastructure that I patented.

The FHFA's MBS Platform is being developed so that Fannie Mae and Freddie Mac can be wound down at some time in the future and a market for non-government guaranteed mortgage-backed securities can develop.

The FHFA proposal has even been sensitive to the National Association of Insurance Commissioners (NAIC) white paper that set the standard for disclosure for all forms of covered bonds and asset backed securities.
Disclosure covers the process whereby attributes describing a security and underlying loans or pools are published to the marketplace in a timely manner. 
Preliminary disclosure occurs before the security settles in order to alert the market to a pending security’s fundamental characteristics. On settlement date, the platform would publish the final disclosure, which includes detailed information describing the final loan pool and security structure. 
On-going disclosure occurs monthly, or when relevant changes occur to the pool or underlying loans.
When 'relevant changes occur to underlying loans' is known as observable event based reporting.  Any time an activity like a payment or default occurs involving an underlying loan it is reported to all market participants before the beginning of the next business day.

I look forward to working with the FHFA as they build the MBS Platform.

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