Comment Detail

Comment

The proposed pooling practices would have an adverse effect not only on the secondary trading market but more importantly the end borrower. FHFA is arguing that large pools increase liquidity in the mortgage market, however I do not find this to be true. The market is no more liquid today with Major/Multi programs comprising 70% of the market than it was when this program first launched.

In the secondary trading market, the policy proposed is only going to drive up the cost of call protection pools in the market. You are essentially driving up the cost of convexity in the market by making loan balance pools small and less options. The secondary market is a great way for originators to improve their best execution for their loans. This practice allows originators to provide more competitive rates to the borrower given they are able to move their risk at a better price. By taking away the ability to pool specified pools more efficiently, you are increasing the difficulty of originators to find best execution which will then result in borrowers seeing increases in borrowing rates.

The initial goal of UMBS was to create a vehicle for more competitors with the GSEs when it comes to market share and pricing. Unfortunately, the proposed changes would simply make it easier for the GSEs to corner the market. Being able to pool better loans into specified stories is the best way to enter this market given the better pricing business can receive. By forcing more loans into the Major/Multi program, the GSEs will only increase their market share thus achieving the exact opposite purpose of UMBS.

FHFA should better monitor seller/servicer practices in the market than change pooling practices. Monitoring non-bank lenders to ensure they are not churning loans is more beneficial to the market than changing pooling practices.