The Federal Reserve Bank of New York is streamlining its Ginnie Mae holdings by combining mortgage-backed securities with similar characteristics into larger pass-through instruments.
The process, called CUSIP aggregation, is commonly used by other MBS holders and the New York Fed already has done this to consolidate its Fannie Mae and Freddie Mac holdings, it said in an operating policy statement. All three secondary market agencies offer this aggregation service, the New York Fed said.
“Because all of the payments on the underlying agency MBS flow through to the aggregated CUSIPs, the aggregation process will not otherwise affect the size or characteristics of the System Open Market Account portfolio and does not indicate anything about the future timing or direction of changes in policy,” the New York Fed statement said.
There are approximately 37,000 individual agency MBS CUSIPs in the SOMA portfolio. The aggregation process will cut that to about 29,000. Those 8,000 CUSIPs will be consolidated into eight aggregated CUSIPs.
“CUSIP aggregation simplifies back-office operations and reduces operational risks and administrative costs associated with holding a large number of individual agency MBS CUSIPs,” a frequently asked questions page on the New York Fed website added.
The New York Fed performed two rounds of CUSIP aggregation on the Fannie Mae and Freddie Mac MBS portfolios, the first announced in January 2011 and the second in July 2015. “Together, these aggregation programs have reduced the number of individual CUSIPs in the SOMA portfolio by over 100,000,” the FAQ said.
Only Ginnie Mae I securities will be aggregated. The underlying mortgages in these securities generally have the same or similar maturity dates and the same interest rates. Ginnie Mae II securities “are already securitized in such in a way as to minimize the need for aggregation. In addition, story pools — including pools backed by mortgages issued in Puerto Rico and New York, and pools with lower original loan balances — will also be excluded from the Ginnie Mae aggregation program,” according to the FAQ.
Ginnie Mae is not affected by the New York Fed move, a spokesman said.