This topic provides information on establishing an MBS trading account, including:
The table below describes the stages to establish a trading account.
To establish a trading account, the lender may call the Capital Markets Pricing and Sales Desk. See E-1-03, List of Contacts.
|2||Each lender must provide the following information:
|3||Each lender must provide an address that can be used for all official notices and communications sent to the lender, and wiring instructions for the different types of payments Fannie Mae makes to the lender.|
|4||The lender must continue to provide updates about any changes to its authority to perform under the trading account, the individuals authorized to transact business with the Capital Markets Pricing and Sales Desk (or their limits of authority), and the lender’s address or wiring instructions.|
A lender’s trading account is governed by the terms of its Mortgage Selling and Servicing Contract (MSSC), the provisions of this Guide and any special instructions provided for in a specific trade confirmation or settlement notice.
By initiating trade activity with the Capital Markets Pricing and Sales Desk, lenders agree to adhere to Fannie Mae’s guidelines for selling securities and to SIFMA's Uniform Practices for the Clearance and Settlement of Mortgage-Backed Securities and Other Related Securities, including any amendments to either. Should there be a conflict between the requirements in this Guide and the SIFMA provisions, the requirements of this Guide take precedence.
As security for payment of its obligations and liabilities under its trading account, the lender grants Fannie Mae a first priority security interest in any and all of its right, title, and interest in its securities, money, or other property that is held for (or by) Fannie Mae.
If appropriate authorities require the filing of a financing statement to evidence this security interest, the lender must execute and deliver any legal instruments required to protect or perfect Fannie Mae’s security interest.
By accessing Fannie Mae’s electronic trading platform, currently known as the MBS Trading Portal, the lender agrees that the platform will be a “Licensed Application,” as defined in the Master Terms contained in E-2-03, Software Subscription Agreement Master Terms and Conditions. The lender also agrees that it is subject to the Master Terms, and that the following additional terms apply.
Authorized User For purposes of the electronic trading platform, the term “Authorized User” includes individuals:
working for Third-Party Providers retained by the lender to perform mortgage-related services requiring access to the Licensed Application on the lender’s behalf or third-party originators (such as mortgage brokers or correspondents that are affiliated with lender) that require access to the Licensed Application; and
who have obtained Authentication Credentials as a result of the lender’s actions.
The lender agrees that actions of Authorized Users are deemed to be actions of the lender.
Evidence of a Trade The Licensed Application’s confirmation of a trade as “Accepted,” together with the Selling Guide and any applicable MBS trading agreement between lender and Fannie Mae, the conclusive evidence of a trade and the terms between Fannie Mae and lender with respect to the trade described in the confirmation.
Indicative Pricing If indicative pricing is displayed to the lender, the lender acknowledges and understands that such pricing is not the actual pricing and is subject to increase or decrease prior to acceptance of the trade.
Termination of Relationships Fannie Mae reserves the right to immediately suspend or terminate any relationship established between a lender and a third party by and for the Licensed Application at any time, in its sole discretion.
When Fannie Mae establishes a trading account for a lender, it may establish trading limits, margin requirements, a designated threshold amount, and a minimum transfer amount specific to a lender.
After a trading account is established for a lender, Fannie Mae may:
amend or cancel any trading limits, margin requirements, designated threshold amounts, or minimum transfer amounts initially imposed on a lender’s trading accounts; and
decline to engage in any specific transaction with the lender.
Subject to the applicable designated threshold amount and minimum transfer amount (defined below), a lender and Fannie Mae may elect to exchange variation margin if there is a price differential on the lender’s open (unsettled) trades with Fannie Mae.
A price differential exists if, at any time, with respect to a lender’s open trades with the Capital Markets Pricing and Sales Desk, either party would incur a loss if it canceled the open trades and entered into replacement transactions (i.e., there is a difference between the current market price and the settlement price of the open trades). If a price differential exists, the party that would receive positive income from the cancellation of the open trades and entry into replacement transactions is “in the money,” and the party that would incur a cost from the cancellation of the open trades and entry into replacement transactions is “out of the money.”
If there is a negative price differential for a lender’s open trades with the Capital Markets Pricing and Sales Desk (i.e., on any trading day, the lender is “out of the money” with regard to the securities it has contracted to purchase or sell to Fannie Mae), then Fannie Mae may request that the lender wire cash to Fannie Mae, subject to the lender’s designated threshold amount and minimum transfer amount.
If there is a positive price differential for a lender’s open trades with the Capital Markets Pricing and Sales Desk (i.e., on any trading day, the lender is “in the money” with regard to the securities the lender has contracted to purchase or sell to Fannie Mae), then the lender may request that Fannie Mae wire cash to the lender, subject to Fannie Mae’s designated threshold amount and minimum transfer amount.
When calculating the price differential:
any open trades between the lender and the Capital Markets Pricing and Sales Desk will be disregarded if they have been assigned, submitted, transferred, or reported to a securities clearing organization (e.g., the Fixed Income Clearing Corporation) for clearing, netting, and/or settlement such that the open trade will be factored into the applicable margin requirements of such securities clearing organization; and
any outstanding pair-off fees relating to trades between the lender and the Capital Markets Pricing and Sales Desk will be factored into the calculation of the price differential.
The designated threshold amount represents a level of unsecured exposure an “in the money” party will accept before making a margin call on the “out of the money” party. Fannie Mae’s designated threshold amount and a lender’s designated threshold amount shall each be $3,000,000, unless otherwise agreed to by the parties in writing and/or subject to the occurrence of a triggering event as discussed below.
If there is a positive price differential and a lender is in the money by $3,100,000, the lender may make a margin call to Fannie Mae for $100,000. ($3,100,000 – Fannie Mae’s designated threshold amount of $3,000,000).
A minimum transfer is a specified amount of money that must be exceeded before a margin call can be made. Fannie Mae’s minimum transfer amount and a lender’s minimum transfer amount shall each be $50,000, unless otherwise agreed to by the parties in writing and/or subject to the occurrence of a triggering event as discussed below.
Notwithstanding the foregoing, Fannie Mae will not wire cash to a lender in the event of a positive price differential if any of the following “triggering events” has occurred with respect to a lender:
an event of default under the Lender Contract or any other contract between Fannie Mae and the lender,
the lender’s failure to meet any of the lender eligibility requirements set forth in Subpart A-4, Maintaining Lender Eligibility,
a decline in a lender’s adjusted net worth by more than 20% over a quarterly reporting period or by more than 30% over two consecutive quarterly periods,
the total unpaid principal balance of all outstanding Fannie Mae repurchase requests to a lender exceeds 15% of the lender’s adjusted net worth,
Fannie Mae comes into possession of information that, in Fannie Mae’s reasonable discretion, could result in an adverse impact, either presently or in the future, on the lender’s counterparty relationship with Fannie Mae or the lender’s financial condition, or
outstanding contractual fees owed by a lender to Fannie Mae.
Further, upon occurrence of a triggering event for a lender, Fannie Mae, in its sole and absolute discretion, may modify or eliminate the designated threshold amount and minimum transfer amount applicable to such lender without prior notice to the lender.
Under the terms of the trading account, certain events could result in the lender being in default. A lender is in default if Fannie Mae determines, at any time, that any of the representations that were made regarding the lender’s ability (or that of a designated authorized individual) to transact business is incorrect or untrue in any material respect, or if the lender:
initiates a case or proceeding (or has a suit brought against it) under any bankruptcy, insolvency, reorganization, liquidation, dissolution, or similar law;
seeks the appointment of a receiver, trustee, custodian, or similar official for itself or any substantial part of its property;
executes a general assignment for the benefit of its creditors;
admits in writing that it does not have the ability to pay its debts as they come due;
is subject to an outstanding, uncontested order of relief or a protective decree issued under the Securities Investor Protection Act; or
fails to perform as required. Instances of nonperformance that constitute a default include the failure to:
perform any of the obligations set out in a confirmation or settlement notice;
perform any obligations with respect to completing a trade (or the admission that it is unable or unwilling to do so);
perform obligations under any other agreement or contract it has with Fannie Mae;
if notice is sent by Fannie Mae by 10:00 a.m. on a business day, satisfy the price differential on lender’s trades with the Capital Markets Pricing and Sales Desk by the close of business on that same business day; or
if notice is sent by Fannie Mae after 10:00 a.m. on a business day, satisfy the price differential on lender’s trades with the Capital Markets Pricing and Sales Desk by 12:00 noon on the next business day.
A default with respect to one transaction will constitute a default for all of the lender’s transactions with the Capital Markets Pricing and Sales Desk. See E-1-03, List of Contacts.
The lender’s payments, deliveries, and transfers for one transaction may be applied (“netted”) against the lender’s other transactions.
Fannie Mae also may treat a default under the lender’s trading account as a default under the lender’s MSSC.
When that is the case, the provisions for “termination (of a selling or servicing arrangement or the contract) for cause” that are set out in A2-3.1-01, Lender Breach of Contract, will apply.
The lender will be liable for any losses incurred by Fannie Mae due to the lender’s default with the Capital Markets Pricing and Sales Desk. See E-1-03, List of Contacts. The following table details the remedies that are available to Fannie Mae when it declares a lender to be in default under its trading account.
|If …||Then …|
|Fannie Mae declares a lender to be in default under its trading account,||Fannie Mae may require that the settlement for all of the lender’s outstanding transactions be accelerated and take place immediately. In addition, Fannie Mae shall have all rights and remedies of a secured party under the Uniform Commercial Code and any other rights available under applicable law.|
|The lender was committed to buy securities from the Capital Markets Pricing and Sales Desk,||Fannie Mae may sell the securities at the current market value (or, as an alternative, give the lender credit for the current market value as if a sale had taken place). The lender will then be liable for any losses incurred by Fannie Mae that occur because the current market value is less than the purchase price the lender would have paid had the securities been transferred to it.|
|The lender was committed to sell securities to the Capital Markets Pricing and Sales Desk,||Fannie Mae may purchase securities of the same class and amount as those the lender was committed to sell at the current market value (or, as an alternative, deem itself to have purchased the comparable securities for the purpose of determining the lender’s liability). The lender will then be liable for any losses incurred by Fannie Mae that occur because the current market value is greater than the purchase price Fannie Mae would have paid had the lender transferred the securities to the Capital Markets Pricing and Sales Desk.|
In addition, the lender must pay:
all reasonable legal and other expenses Fannie Mae incurs in connection with, or as the result of, the lender’s default under its trading account, and
interest on the Fannie Mae losses and expenses for which the lender is liable from the date of default to the date the lender reimburses Fannie Mae.
If necessary, Fannie Mae may liquidate and apply against the obligations the lender owes as the result of its default, any and all of the lender’s securities, money, and other property that is held for (or by) Fannie Mae.
The risk of loss when transacting with the Capital Market Pricing and Sales Desk can be substantial. A lender should carefully consider whether a transaction is suitable in light of its financial condition, its investment objectives, and any legal or regulatory restrictions to which it may be subject. The market value for the securities to be purchased or sold by a lender can vary substantially over the term of a transaction. A lender should carefully consider if it has the operational resources in place to monitor the risks and contractual obligations of a transaction, including the risk that Fannie Mae may request that a lender post margin to satisfy a price differential on the same or the following business day.
By agreeing to a confirmation, the lender is deemed to have represented and warranted that it understands the risks associated with the transaction with the Capital Market Pricing and Sales Desk, and the lender believes that the transaction is suitable for the lender. Similarly, to the extent that the lender assigns or transfers any of its rights and obligations under any transaction, the lender shall be deemed to represent and warrant as of the date of such assignment that the lender has reasonable grounds to believe that any such assigned transaction is a suitable transaction for the assignee. Fannie Mae and the lender agree that, if any rights and obligations are so assigned by the lender, notwithstanding any consent to such assignment by Fannie Mae, Fannie Mae shall have no obligation to undertake an evaluation of the suitability of the assigned rights and obligations to the assignee.
Before engaging in any transactions with the Capital Market Pricing and Sales Desk, a lender should consult its own business, legal, tax, risk, accounting, and other advisers and examine the provisions in this Chapter of the Guide to determine whether the risks to the lender are appropriate.
The lender acknowledges, at all times, that Fannie Mae is not acting as a fiduciary or an advisor with respect to any transaction with the Capital Markets Pricing and Sales Desk.
The lender and Fannie Mae also agree that transactions between the lender and the Capital Market Pricing and Sales Desk are intended to be:
”forward contracts,” “securities contracts, ” and “master netting agreements,” as such terms are defined in the United States Bankruptcy Code, as amended, and of a type set forth in Section 5390(c)(8)(D) or Title 12, as amended;
“qualified financial contracts,” if the lender is an “insured depository institution” under the Federal Deposit Insurance Act, as amended; and
a “netting contract” as defined in and subject to Title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991, as amended, and each payment entitlement and payment obligation under any transaction shall constitute a “covered contractual payment entitlement” or “covered contractual payment obligation, respectively, as such terms are defined in such Act.
The lender and Fannie Mae also agree that either party’s rights to cancel a transaction or exercise any other remedies upon a default is a contractual right to liquidate such transaction as described in Section 555 and 556 of the United States Bankruptcy Code, as amended, and a right to terminate, liquidate, or accelerate as described in Sections 5390(c)(8)(A) and (C) of Title 12 of the United States Code, as amended.