Fannie Mae and Freddie Mac (the government-sponsored enterprises or GSEs) keep capital flowing for mortgage lending by buying, guaranteeing and pooling mortgages and then selling mortgage-backed securities to investors. Currently, both entities issue their own separate securities, but their conservator, the Federal Housing Finance Agency (FHFA), has put forth a plan to have both entities issue and guarantee a single security. FHFA’s single security proposal is well-thought out and worthy of serious consideration and support by all the key stakeholders.
In August, the FHFA issued a request for input on the proposed structure of a single security for the GSEs. Currently, each entity’s securities have different features and trading prices. Freddie Mac’s securities are less liquid, and thus less desirable.