SIFMA Updates MBS TBA Rules

The Securities Industry and Financial Markets Association announced that it is updating the MBS TBA good delivery rules to reflect its decision to keep maximum TBA eligible loan limits at pre-existing levels. These good delivery guidelines are also know as “Standard Requirements for Delivery on Settlements of Fannie Mae, Freddie Mac and Ginnie Mae Securities.” The guidelines detail a number of market practice standards developed over the last three decades regarding TBA trading of MBS pools issued by GSEs and Ginnie Mae. According to a SIFMA release, the guideline updates will reflect the decision by SIFMA to keep the maximum TBA eligible original loan balance at current levels as well as clarify several long standing market practices for good delivery. The existing maximum original balance allowable for a loan on a one family property in a TBA eligible Fannie Mae or Freddie Mac pool is $417,000 in most states. But, in Alaska, Hawaii, Guam and the U.S. Virgin Islands the limit increases to $625,500. Higher balance loans that are now temporarily eligible for Federal Housing Authority and GSE guarantee programs under H.R. 5140, the Stimulus Package, will not be eligible for inclusion in TBA-eligible pools. Instead, SIFMA said that they should be securitized under unique pool codes for trading on a “specified pool” basis or inclusion in REMIC deals. “SIFMA views this methodology as the most expeditious and least disruptive option currently available to facilitate securitization and secondary market activity for the higher balance loans, bringing added liquidity and rate relief to higher balance loan borrowers while not imposing additional costs or impairing the liquidity for loans falling within the pre-existing loan limits,” said Sean Davy, managing director of SIFMA’s MBS and securitized products division.