The Federal Housing Finance Agency (FHFA) released the deemed-issuance ratio for 2022 for Fannie Mae and Freddie Mac (the Enterprises). This is pursuant to revenue Procedure 2018-54, which calls for the FHFA to determine a deemed-issuance ratio for each year based on the ratio of to-be-announced (TBA) trade-eligible securities issued by the Enterprises during the 24-month period ending Oct. 31 of the preceding year.
The ratio is used for diversification reporting on bonds ultimately delivered to the purchaser until the bonds have been disposed of, regardless of whether it was Fannie Mae or Freddie Mac that issued the underlying bonds.
The ratio may be rounded if the round ratio is further from 50/50 than the actual observed data. As a result, the deemed issuance ratios for 2022 is 56 percent for Fannie Mae and 44 percent for Freddie Mac.
The ratio was set in accordance with Internal Revenue Service guidelines regarding uniform mortgage-backed securities (UMBS) trading.
“The IRS procedure provides guidance on Section 817(h) of the Internal Revenue Code diversification requirements for variable annuity, endowment, and life insurance contracts,” the agency stated. “The IRS has provided a deemed-issuance-ratio to allocate issuer exposure for TBA trades between the Enterprises. Compliance with these requirements is affected by the implementation of and trading in UMBS.”