Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are one step closer to using the Common Securitization Platform (CSP) first outlined by FHFA chief Mel Watt earlier this year, now that they have announced the CEO and board of Common Securitization Securities (CSS) the group responsible for managing CSP. David Applegate, a former head of GMAC Mortgage and GMAC Bank with more than 20 years in the banking and mortgage industry, has been appointed CEO, with the rest of the board made up of two executives from each of the GSEs.
“One of our goals is to build a new securitization infrastructure to meet the current securitization needs of the Enterprises that could be adaptable for other users in the future,” said Watt in a statement. “FHFA remains committed to achieving a seamless CSP launch, and I am confident the steps announced today, combined with ongoing input from stakeholders, will help ensure success.”
CSP is meant to be flexible since Fannie Mae, Freddie Mac’s future still unknown
Even though legislative reform has stalled out indefinitely, as Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) CEOs recently explained, that doesn’t mean GSE reform had also ground to a halt. The purpose of the CSP is to provide a flexible bridge that can be used to transition from the current model (Fannie Mae and Freddie Mac in conservatorship limbo) to something more permanent without tying Congress’s hands. Watt has pointedly avoided speculating on what that permanent solution should look like, but it seems clear that he doesn’t expect the GSEs to simply be dismantled without some sort of replacement.
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‘Stakeholders’ likely refers to taxpayers, mortgage industry players
It’s probably a sign that Watt has been successful that different people can realistically see their own preferred program making use of the CSP. Rafferty Capital Markets VP of equity research Richard Bove in a note sent to investors today says that he sees this as a positive for his fellow Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) longs because there could be a role for shareholders in the CSS, which is jointly owned by the GSEs. He may also be seizing on Watt’s mention of ‘input from stakeholders,’ which would normally include shareholders as a matter of course, expect that Watt has explicitly said that he considers himself responsible to taxpayers, not shareholders.