PART 1248—UNIFORM MORTGAGE-BACKED SECURITIES Authority: 12 U.S.C. 1451 note; 1716; 4511; and 4526. Source: 84 FR 7799, Mar. 5, 2019, unless otherwise noted. § 1248.1 Definitions. The definitions below are used to define terms for purposes of this part: Align or alignment Cohort Conditional Prepayment Rate or CPR, Covered Programs, Policies, or Practices e.g., Fastest paying quartile of a cohort specified pools, Material misalignment Misalign or misalignment Mortgage-backed security or MBS Specified pools Supers Three-month conditional prepayment rate (CPR3) CPR3 t t-2 t-1 t 4 where t indicates the month and
SMM is the single month mortality rate, which equals
(PMT t t t t t t t t t To-Be-Announced Eligible Mortgage-Backed Security (TBA-Eligible MBS) Uniform Mortgage Backed Security or UMBS § 1248.2 Purpose. The purpose of this part is to: (a) Enhance liquidity in the MBS marketplace, and to that end, enable adoption of the UMBS, by achieving sufficient similarity of cash flows on cohorts of TBA-eligible MBS such that investors will accept delivery of UMBS from either issuer in settlement of trades on the TBA market. (b) Provide transparency and durability into the process for creating alignment. § 1248.3 General alignment. Each Enterprise's covered programs, policies, and practices must align with the other Enterprise's covered programs, policies, and practices. (a) When aligning covered programs, policies, and practices, the Enterprises must consider: (1) The effect of the alignment on TBA-eligible securities' pricing and particularly on the prepayment speeds of mortgages underlying TBA-eligible MBS. (2) Options that provide the greatest benefit for investors, lenders, and mortgage borrowers. (b) [Reserved] § 1248.4 Enterprise consultation. When and in the manner instructed by FHFA, the Enterprises shall consult with each other on any issues, including changes to covered programs, policies, and practices that potentially or actually cause cash flows to TBA-eligible MBS investors to misalign. The Enterprises shall report to FHFA on the results of any such consultation. § 1248.5 Misalignment. (a) The Enterprises must report any misalignment to FHFA. (b) The Enterprises must submit, in a timely manner, a written report to FHFA on any material misalignment describing, at a minimum, the likely cause of material misalignment and the Enterprises' plan to address the material misalignment. (c) FHFA will temporarily (1) In adjusting the percentages, FHFA will consider: (i) The prevailing level and volatility of interest rates; (ii) The level of credit risk embedded in the Enterprises' TBA-eligible MBS; and (iii) Such other factors as FHFA may, in consultation with the Enterprises, determine to be appropriate to promote market confidence in the alignment of cash flows to TBA-eligible MBS investors and to foster the efficiency and liquidity of the secondary mortgage market. (2) FHFA will publicly announce any temporary adjustment to the percentages in the definition of align, misalignment, and material misalignment in a timely manner. (3) If adjusted percentages remain in effect for six months or more, FHFA will amend this part's definitions by Federal Register (4) Temporarily adjusted percentages will remain in effect until six months after the date on which FHFA announced the temporary adjustment unless within six months of that date— (i) FHFA announces a reversion to the previously prevailing percentages; or (ii) FHFA initiates the notice and comment process, in which case the temporary percentages will remain in effect until the conclusion of that process. (d) FHFA will temporarily (1) In adjusting those definitions, FHFA will consider: (i) Changes in prevailing market practices related to the identification of specified pools; (ii) The prevailing interest rates environment; (iii) Observed relationships between pool characteristics and prepayment behavior of the Enterprises' TBA-eligible MBS; and (iv) Such other factors as FHFA may, in consultation with the Enterprises, determine to be appropriate to promote market confidence in the alignment of cash flows to TBA-eligible MBS investors and to foster the efficiency and liquidity of the secondary mortgage market. (2) FHFA will publicly announce any temporary adjustment to the definitions of cohort and specified pools in a timely manner. (3) If adjusted definitions remain in effect for six months or more, FHFA will amend this part's definitions by Federal Register (4) Temporarily adjusted definitions will remain in place until six months after the date on which FHFA announced the temporary adjustment unless within six months of that date— (i) FHFA announces a reversion to the previously prevailing definitions; or (ii) FHFA initiates the notice and comment process, in which case the temporary definitions will remain in effect until the conclusion of that process. § 1248.6 Covered programs, policies, and practices. (a) Enterprise Change Management Processes. (1) Submissions to FHFA must include projections for prepayment rates and for removals of delinquent loans under a range of interest rate environments and assumptions concerning borrower defaults. (2) Submissions to FHFA must include an analysis of the impact on borrowers and impact on the fastest paying quartile of each cohort. (3) Submissions to FHFA must include an analysis of identified risks and may include potential mitigating actions. (b) Enterprise Monitoring. (c) FHFA Monitoring. § 1248.7 Remedial actions. (a) Based on its review of reports submitted by the Enterprises and reports issued by independent parties, if FHFA determines that there is misalignment, or the risk of misalignment, FHFA may: (1) Require an Enterprise to undertake additional analysis, monitoring, or reporting to further the purposes of this part. (2) Require an Enterprise to change covered programs, policies, and practices that FHFA determines conflict with the purposes of this part. (b) To address material misalignment, FHFA may require additional and expedient Enterprise actions based on: (1) Consultation with the Enterprises regarding the cause of the material misalignment; (2) Review of Enterprise compliance with previously agreed upon or FHFA-required actions; and (3) Review of the effectiveness of such actions to determine whether they are achieving the purpose of this part. (c) Depending on the severity and cause of any material misalignment, FHFA, in its discretion, may: (1) Require an Enterprise to terminate a program, policy, or practice; or (2) Require the competing Enterprise to implement a comparable program, policy, or practice. (d) When requiring an Enterprise to terminate a program, policy, or practice, or implement a comparable program, policy, or practice, FHFA will consider: (1) The effect on TBA-eligible securities pricing and particularly on the prepayment speeds of mortgages underlying TBA-eligible MBS; and (2) The costs borne by and the benefits likely to accrue to investors, lenders, and mortgage borrowers. § 1248.8 De minimis FHFA may exclude from the requirements of this part covered programs, policies, or practices of an Enterprise as long as those covered programs, policies, or practices do not affect more than $5 billion in unpaid principal balance of that Enterprises' TBA-eligible MBS.