During the financial crisis that started back in 2008, the federal government took control of both Fannie Mae and Freddie Mac the government sponsored enterprises because they became insolvent. One of the ideas that the since-then managing agency the FHFA Federal Housing Finance Agency came up with is the Common Securitization Platform. This strategic goal resulted from the FHFAs 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac report.
The hope with this Common Securitization Platform is to create a new and greatly improved securitization infrastructure for both Freddie Mac and Fannie Mae. These two groups are collectively known as the Enterprises. Their new platform is to be for American mortgage loans which are backed up by single family kinds of properties.
In order to put this vision into reality, the two GSEs have established a joint venture called CSS Common Securitization Solutions. It is actually designing the Common Securitization Platform under the leadership and direction of the FHFA. The CSS fills the role of agent for both enterprises to help with issuing the single family mortgage securities. It also is handling disclosures when the securities are issued and in the future. Besides this, CSS is administering such securities after they are issued.
Among the more important tasks the Common Securitization Solutions is carrying out with regards to the program surrounds the operational capabilities of the Common Securitization Platform. CSS is responsible for creating these so that the CSP will run. The CSP will eventually support the securitizing activities of the GSEs and their single family mortgage program. This will culminate in the two Enterprises issuing one Single Security, which will actually be a single mortgage backed security.
Issuing this Single Security is important for several reasons. The FHFA along with Fannie Mae and Freddie Mac all want to see their securities’ all around liquidity improve. This will also aid in the mission of the two GSEs to ensure the country’s housing finance markets remain liquid too.
Common Securitization Platform is both a technology and operating platform then. In the future, it will handle a great number of the critical back office functions and operations of the Single Security. It will also take over the majority of the two GSEs present securitization operations in the single family mortgages for them. Without the CSP, it would be practically impossible to actually launch and integrate the Single Security.
Single Security is the future of Freddie Mac and Fannie Mae. It will help to ensure that adequate financing for fixed rate mortgages and loans continues for the one unit to four unit single family properties. The way that it will actually do this is by taking elements from both of the GSEs and combining the best of each.
There are three areas where these different procedures have to be aligned for the Single Security to function properly. The key features of the Fannie Mae mortgage backed securities and the Freddie Mac participation certificates will be taken mostly from Fannie’s mortgage backed securities model. Investor disclosures will be modeled after Freddie’s participation certificates. A final area to be aligned concerns the practices and policies that will be utilized to take loans out of securities.
The Single Security endeavor also promises to allow for some exchanges of old for new securities. This pertains particularly to the 45 day Participation Certificates of Freddie Mac. These will be exchangeable for 55 day time frame Single Securities that Freddie Mac will issue.
The term 'Common Securitization Platform (CSP)' is included in the Real Estate edition of the Financial Dictionary. You can get your copy on mazon in Kindle or Paperback version. See more details here.