Acceptance of a firm bid to sell MBS to the Desk is an enforceable obligation that requires the lender to deliver the security at the parameters agreed upon at the time of the trade and in amount that meets the minimum trade requirements for the commitment. When a lender meets this obligation, it has made good delivery.
However, a good delivery for Fannie Mae’s purposes and a good delivery that satisfies SIFMA's guidelines for a TBA trade are not always the same. The guidelines that determine whether a lender has or has not made good delivery for a TBA trade include the following:
The delivery of a single-lender MBS under a firm bid that specified a Fannie Majors multiple-lender MBS does not constitute good delivery for that trade. The delivery of a Fannie Majors UMBS, however, will be considered good delivery for a TBA trade under any firm bid, even if the lender did not specify that the trade would include a Fannie Majors UMBS.
The delivery of a 30-year term UMBS against a TBA trade that specifies a 30-year UMBS will not be considered as a good delivery unless the final maturity date of the security was greater than 181 months when the security was issued.
The delivery of an MBS backed by pools that are comprised of more than 10% of any single type of nonstandard loan or more than 15% of any combination of nonstandard loans is not considered a good delivery for a TBA trade. See C3-2-01, Determining Eligibility for Loans Pooled into MBS for additional information about pooling nonstandard loans.
Failure to effect a good delivery of a security for a TBA trade can severely limit a lender’s ability to deal with the Desk and could result in Fannie Mae declaring the lender to be in default. See C3-7-01, Establishing an MBS Trading Account, for more details.
See C3-7-04, Delivering MBS Pool Data and Documents, for specifics on the data and documents required in order to make good delivery.
The maximum difference between the principal balance the lender committed to deliver and the amount actually delivered can be plus or minus 0.01% of the trade amount for a TBA trade. If multiple trades are executed against a single pool transmission, the delivery variance applies to each trade.
Lenders that need a higher or lower variance in some situations should contact the Capital Markets Pricing and Sales Desk to negotiate an alternative variance. Lenders should note, however, that trades that have variances outside of SIFMA's tolerances will not be eligible for TBA trades. Also, no variance is allowed for transactions in which the seller provides the buyer with a pool number and specific original face amount on the date the two parties agree to enter into the transaction. For funding purposes, the principal amount is calculated as follows:
|a = d x b, where|
|a = net principal|
|d = current balance of the security|
|b = price (in decimals)|
Accrued interest is paid up to, but not including, the settlement date. Therefore, if the settlement occurs on the first of the month, the current amount due does not include an accrued interest payment. For funding purposes, the accrued interest amount is calculated based on the following formula:
|c = [d x e/360 days] x (f – 1 day), where|
|c = interest|
|d = current balance of the security|
|e = the pass-through rate|
|f = the settlement date|
The maximum number of pools permitted for delivery into a given trade depends on:
the MBS pass-through rate,
the amount of the trade, and
the number of pools that are needed to reach the minimum delivery amount (which is determined by the applicable trade delivery variance). The current minimum balance for each pool in a group submission must be at least $25,000.
The limits are described in the following table:
|MBS Pass-Through Rate||Original Trade Amount||Maximum Number of Pools|
|< 8%||≤ $500,000||1|
|> $500,000 and < $1,000,000||2|
|≥ $1,000,000||3 pools per each million dollars of the trade amount|
|≥ 8%||≤ $500,000||3|
|> $500,000 and < $1,000,000||4|
|≥ $1,000,000||5 pools per each million dollars of the trade amount|
If a lender is having difficulty meeting its commitment to deliver a security, the Desk may permit the lender to execute a “pair-off.” The lender should request a pair-off well in advance of the scheduled settlement date to avoid a “failed” delivery.
To request a pair-off, a lender may either:
request a “firm offer” from the Desk, identifying the trade to be paired off. A firm offer will enable the lender to buy from the Desk (at current market value) an MBS that is comparable to the one the lender agreed to sell to the Desk, or
arrange a transaction with a third party whereby the lender purchases the MBS from that party and delivers it to the Desk in fulfillment of its commitment.
Pair-offs are not always possible in certain market environments; therefore, a lender should evaluate market conditions before considering their use.
The lender must wire pair-off funds to Fannie Mae on the settlement date. If the lender owes Fannie Mae pair-off funds from two or more related buy and sell transactions that settle on the same day, it should remit a single wire for the net amount due to Fannie Mae. The wire transfer must include the lender’s name, the settlement date, and the word “pair-off.”
Fannie Mae has the right to charge interest on delinquent funds.
The table below provides references to the Announcements that have been issued that are related to this topic.