SFA Responds to FHFA’s RFI on Social Bond Disclosure Policy

On May 17, 2023, the Structured Finance Association (SFA) submitted a response to the Federal Housing Finance Agency (FHFA) Request for Input (RFI) on their Social Bonds Policy. In February 2022, the FHFA issued an RFI to better understand risks and opportunities associated with issuing single-family social bonds.

SFA’s response to the RFI focuses on market dynamics that could influence social bonds from the GSEs, including investor appetite for such bonds, as well as the kinds of disclosures that would be most beneficial for investors seeking to allocate capital. SFA advocates for additional transparency and granularity of disclosures, while noting the importance of maintaining the safety and soundness of the GSEs, including overall TBA market liquidity.

Key Points:

• Our response provides an overview of what drives investor premiums for agency MBS and discusses how additional disclosures could expand the depth and breadth of Agency MBS investors. We also note how additional disclosures can help investors make better investment decisions within their current investment allocation strategy.
• SFA discusses both program-specific disclosures (i.e., disclosures within frameworks like the GSEs HomeReady or Home Possible programs) as well as universal disclosures (i.e., disclosures across Agency MBS). Our response notes that program-specific disclosures could allow the GSEs to more easily identify and direct economic benefits to the borrowers whose loans drive TBA premiums, while universal disclosures can create market signals that the GSEs could use to create new programs.
• SFA recommends a balanced approach that provides both additional investor transparency through enhanced and borrower benefits while ensuring that borrower anonymity is protected. Our letter reiterates SFA’s call for disclosures with greater granularity and transparency than is currently provided in the GSE Social Index.
• SFA notes that enhanced social disclosures—and any associated specified pools—could potentially impact the pricing of standard TBA pools. SFA therefore recommends that FHFA continue its oversight of TBA liquidity, writing that benefits of enhanced Social disclosures outweigh the relatively small risk of diminished TBA liquidity.
• Finally, SFA’s response states that while we have no data to suggest that enhanced social disclosures would disrupt the performance of the Uniform Mortgage-Backed Security, it will be imperative that FHFA ensure that GSE policies are aligned so as to avoid divergence in the relative prepay speeds of both GSEs’ securities.