The following frequently asked questions (FAQs) provide further information about the Federal Reserve Bank of New York's (New York Fed) plans to consolidate certain agency mortgage-backed securities (MBS) that are held in the System Open Market Account (SOMA) through a process called CUSIP aggregation.
Effective October 6, 2022
A CUSIP is a unique security identifier developed by the Committee on Uniform Security Identification Procedures.
What is agency MBS CUSIP aggregation?
Agency MBS CUSIP aggregation is a process through which a number of existing MBS CUSIPs issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae (agency MBS) with similar characteristics, such as coupon and original term to maturity, are consolidated into a larger pass-through security. The cash flows from the underlying agency MBS provide the cash flows for the new aggregated CUSIP so the overall size and characteristics of the MBS portfolio remain unchanged. This aggregation service is offered by Fannie Mae, Freddie Mac, and Ginnie Mae.
What are the benefits of CUSIP aggregation?
CUSIP aggregation is commonly used by market participants to reduce the administrative costs and operational complexity associated with managing an agency MBS portfolio. The Federal Reserve has previously engaged in CUSIP aggregation, including three rounds of Fannie Mae and Freddie Mac aggregations which began in 2011, 2015 and 2019 and one round of Ginnie Mae aggregation which began in 2019. Together, these aggregation programs have reduced the number of individual CUSIPs in the SOMA portfolio by over 125,000.
Does CUSIP aggregation imply anything about the Federal Reserve’s future plans related to agency MBS holdings or broader monetary policy actions?
No. CUSIP aggregation is a matter of prudent portfolio administration by the New York Fed, and no inference should be drawn about the timing or nature of any future plans related to the Federal Reserve’s agency MBS portfolio or broader monetary policy actions.
Will CUSIP aggregation affect any of the characteristics associated with the SOMA’s agency MBS portfolio?
No. Cash flows on the underlying agency MBS flow through to the aggregated CUSIPs, so CUSIP aggregation will not affect the size or characteristics of the SOMA portfolio.
The Desk is currently aggregating Freddie Mac CUSIPs that have a 45-day payment delay and are not eligible to be commingled with Fannie Mae and Freddie Mac Uniform MBS (UMBS), which have a 55-day payment delay. Fannie Mae securities issued prior to June 2019, and both Fannie Mae and Freddie Mac securities issued after June 2019 have 55-day payment delays and are eligible for commingling and will not be aggregated at this time. Decisions about any additional aggregations will be communicated at a future date.
What is the Desk’s CUSIP aggregation strategy for 45-day delay Freddie Mac (non-UMBS)?
For Freddie Mac 45-day delay MBS, the Desk will filter along four criteria: Pool category, year produced, coupon, and original term to maturity. Pools backed by mortgages with characteristics that make their prepayment speeds relatively more stable, like pools consisting of mortgages with lower loan balances, pools concentrated in specific geographic regions, and some others, will be first identified. These pools, commonly known as “story pools” in the agency MBS market, will be separated from “no story pools.”
Both story and no story pools are then filtered into cohorts by coupon, original term to maturity and year produced. Older cohorts are grouped together while newer cohorts are typically aggregated by year produced. For certain cohorts where holdings are relatively low, pools are aggregated together by term to maturity and coupon only. Once the filtering process is complete, cohorts will be aggregated as long as they contain at least 10 underlying CUSIPs.
Any aggregated CUSIPs that do not meet the requirements described above may be created, when appropriate, using a less stringent filtering scheme. The resulting aggregations could be less homogenous than those created in the strategic aggregation process, but nonetheless help consolidate the portfolio and reduce administrative costs.
What were the key considerations in determining the Desk’s strategy?
The aggregation process was designed to reduce the administrative costs and operational complexities associated with the Federal Reserve’s agency MBS portfolio using a straightforward and rules-based approach that is consistent with standard market practices. The Desk’s CUSIP aggregation strategy as described above may be modified, as needed, over time.
The New York Fed publishes detailed data on all settled SOMA agency MBS holdings on its public website on a weekly basis. In addition, Fannie Mae, Freddie Mac, and Ginnie Mae provide information about aggregated CUSIPs, including the underlying agency MBS, on their public websites.
Will information about the agency MBS underlying the Federal Reserve’s aggregated CUSIPs remain available to the public?
Yes. Information about individual Fannie Mae, Freddie Mac, and Ginnie Mae agency MBS CUSIPs underlying the Federal Reserve’s aggregated CUSIPs will remain available on these organizations' public websites.