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46 FHFA UPDATES MORTGAGE-BACKED SECURITY STRUCTURE INITIATIVE e Federal Housing Finance Agen- cy (FHFA) recently issued an update to its mortgage-backed security (MBS) structure ini- tiative, also known as Single Security. e new changes to the Single Security structure initiative are based on 23 responses to a "Request for Public Input: Proposed Single Security Structure (RFI)" released in August 2014 by the FHFA. e Single Security initiative is still in the works for approval and has not been enacted yet. "FHFA's update should give everyone a sense of how the Single Security will be de- veloped and the solid progress that has been made over the past year," said Dave Low- man, EVP of single-family business at Fred- die Mac. "We strongly believe in the Single Security's potential for expanding liquid- ity in the TBA (to be announced) market, lowering housing finance costs, and making the housing finance system more competitive and resilient." e 2014 Conservatorship Strategic Plan for GSEs Fannie Mae and Freddie Mac consisted of creating a single MBS that the enterprises could provide finance fixed-rate mortgage loans backed by one-to-four single-family-unit properties. According to the FHFA, the initial goal was to assist in building a Common Securitization Plat- form (CSP) and support the statutory obligation to ensure the liquidity of the nation's housing finance markets issued by the FHFA. Taxpayers would also not have to suffer the cost of subsidiz- ing Freddie Mac's securitization of single-family mortgage loans with the Single Security. "Today's Single Security Update is an important milestone, providing additional details on the features of the Single Secu- rity and the strong progress made to date by Fannie Mae, Freddie Mac, and Com- mon Securitization Solutions (CSS) on implementation planning," said Andrew Bon Salle, EVP of single-family business at Fannie Mae. "We will continue to work with FHFA, Freddie Mac, and CSS to ensure we transition to the Single Security in a safe and sound manner." Changes to Single Security Structure: » Each Enterprise will issue and guarantee first-level Single Securities backed by mort- gage loans that the Enterprise has acquired. e Enterprises will not cross-guarantee each other's first-level securities. e Federal Home Loan Banks will not be an eligible issuer of Single Securities. » e key features of the new Single Security will be the same as those of the current Fan- nie Mae MBS, including a payment delay of 55 days. First-level Single Securities will finance fixed- rate mortgage loans now eligible for financ- ing through the TBA market. » Lenders will continue to be able to contrib- ute mortgage loans to multiple-lender pools. » Each Enterprise will be able to issue second- level Single Securities (re-securitizations) backed by first- or second-level securities issued by either Enterprise. » e loan- and security-level disclosures for Single Securities will closely resemble those of Freddie Mac PCs. » Current Enterprise policies and practices re- lated to the removal of mortgage loans from securities (buyouts) are substantially aligned today and will be generally similar and aligned for purposes of the Single Security. » Freddie Mac will offer investors the option to exchange legacy PCs for comparable Single Securities backed by the same mort- gage loans and will compensate investors for the cost of the change in the payment delay. REO SHARE STILL WAY ABOVE NORMAL LEVELS IN MANY METROS e national percentage of residential single-family properties that were REO was 10 percent as of February, which is five times its pre-crisis share (2 percent), meaning that in many metro areas the REO share is still way above pre-crisis levels, according to CoreLogic Senior Economist Molly Boesel. In CoreLogic's MarketPulse, Boesel examined the question of whether or not REO share was headed back toward "a more normal level." Its most recently measured rate of 10 percent is far below the share at the worst of the crisis, which was 28 percent. In some met- ros, the REO share got as high as 70 percent at the worst of the crisis. One of the benefits of declining REO inventory is the elimination of the "saturation effect," or the narrowing of the discount of REO prices to non-distressed resales, accord- ing to Boesel. During the crisis, the discount narrowed to about 30 percent, whereas it fell between 40 and 60 percent before the crisis. "Falling REO shares would most likely help local prices, not only because fewer REOs are selling at a discount but also because the saturation effect should go away," Boesel said. "REO sales can also serve as a substitute for new home sales. Many areas were overbuilt in the run-up to the housing crisis, therefore a lower REO share may boost homebuilding in some areas of the country." In an examination of 386 metro areas that had at least 100 home sales in the last year, CoreLogic found that only 16 of them had REO shares below their pre-crisis means (calculated during a six-year period from 2000 to 2006) and the median distance between the REO share in the metro areas in Febru- ary 2015 and pre-crisis was 6.2 percent. Only 3 percent of the metros measured (14 of them) had REO shares in February that were within 1 percent of their pre-crisis shares, accord- ing to CoreLogic. Six metros (2 percent) had February REO shares that were more than 20 percent higher than their pre-crisis means, led by Detroit, which was 48 percent in February compared to just 5 percent before the crisis. Boesel cautioned that housing markets do not need to fall below their pre-crisis REO inventory levels in order to completely heal, but comparing current REO shares to those during a more "normal time period" does pres- ent an idea of "how far away the metros are from normalcy." REO transactions made up 8.4 percent of total home sales and short sales accounted for 3.7 percent of total home sales in March 2015, according to CoreLogic. KNOW THIS

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