Fannie Mae MBS Structured Transactions Update: Resecuritizing Outstanding REMIC Tranches into Original Underlying Collateral Cash Flows Considered TBA "Good Delivery"

Fannie Mae MBS Structured Transactions Update: Resecuritizing Outstanding REMIC Tranches into Original Underlying Collateral Cash Flows Considered TBA "Good Delivery"

In January 2009, SIFMA made revisions to its Good Delivery Guidelines which allow for certain outstanding Fannie Mae REMIC tranches that have been recombined to represent the original, underlying 30-year and 15-year, fixed-rate collateral cash flows to be eligible for TBA delivery.

Fannie Mae has long offered MBS market participants the ability to re-securitize certain outstanding REMIC tranches into pass-through securities.  With this change to the SIFMA Good Delivery Guidelines, Fannie Mae can facilitate the re-securitization of outstanding tranches back to the original underlying pass-through collateral cash flows, through the issuance of a Mega security, thereby providing MBS market participants with enhanced liquidity and increased ease of operational management of outstanding REMIC securities. 

There are a number of operational and other procedural considerations that govern Fannie Mae's re-securitization process of outstanding REMIC tranches into a Mega representing the original pass-through collateral cash flows.

These governing parameters include the following:

• The SIFMA Good Delivery Guidelines state that for the delivery of certain REMIC tranches to be recombined into a fixed-rate, TBA eligible Mega, the resulting security cash flows must be identical to the cash flows of the original pools backing, either directly or indirectly, those REMIC tranches (or a pro-rata portion of the original pools if less than a full REMIC group is recombined).
  • SIFMA Guidelines also provide that the collateral underlying the original REMIC whose classes are being resecuritized must have been eligible for TBA delivery when the collateral was originated. 
  • All other TBA Good Delivery Guidelines apply to the eligibility of the underlying collateral of the resecuritized REMIC tranches.
• The underlying REMIC securities will be resecuritized into a new REMIC trust which may include additional collateral groups.
• For each underlying REMIC bond or group of bonds, the new REMIC trust will issue either:
  • a single REMIC pass-through bond with a pass-through rate equal to that of the underlying MBS pools
  • a REMIC pass-through bond with an associated Interest-Only (IO) or Principal-Only (PO) Class
    • In this scenario, only the pass-through security will be delivered into a new Mega and will have a pass-through rate equal to the underlying MBS pools.
• Only one new REMIC pass-through bond will correspond to each new Mega.
• The new REMIC pass-through bond will be delivered into a new Mega which will have a "Z*" prefix.  For example, a new Mega backed by 30-year, fixed-rate amortizing collateral that is eligible for TBA Good Delivery will have a "ZL" prefix.  Accordingly, "ZI" for 15-year, fixed-rate amortizing collateral.¹
• The new REMIC Class and related "Z*" Mega must be issued on the same day.  Fannie Mae Structured Transactions can provide a calendar of available settlement dates in a given month.

Additional Considerations

• Each investor and dealer should consult with their own tax and accounting counsel about these transactions.
• Investors should designate a Fannie Mae approved dealer to transact this REMIC-backed Mega process with Fannie Mae.
• Although REMIC backed Megas are eligible for re-securization in REMICs, currently they are not eligible for re-securitization in subsequent Megas.
• As is the case with other MBS Capital Markets transactions, fees to execute these transactions do apply.  The fees will be negotiated privately between Fannie Mae and the dealer.

If potential MBS dealer counterparties wish to engage with Fannie Mae in potentially creating a REMIC-backed Mega or have questions about executing this type of transaction including future enhancements, they should contact Fannie Mae's MBS Structured Transactions Group directly at (202) 752-7875.

¹ In addition to ZL and ZI prefix REMIC-backed Megas, Fannie Mae offers market participants the ability to create non-TBA eligible REMIC-backed Megas with the following prefixes:  ZT, ZX, ZG, ZZ, ZO, ZP, ZQ and ZR.

Page last revised: 01/30/09