[New] FHFA ANNOUNCES DEEMED-ISSUANCE RATIO FOR 2023

The Federal Housing Finance Agency (FHFA) announced the deemed-issuance ratio for the 2023 calendar year in accordance with Internal Revenue Service (IRS) guidelines on the trading of the Uniform Mortgage-Backed Security (UMBS). The deemed-issuance-ratio will be used for diversification reporting on the bonds ultimately delivered to the purchaser until the bonds have been disposed of, regardless of the issuing Enterprise on the underlying bonds.

The IRS Revenue Procedure 2018-54 provides that the ratio may be rounded as long as the rounded ratio is further from 50/50 than the actual observed data. Therefore, the deemedissuance ratio for the 2023 calendar year is 53 percent Fannie Mae and 47 percent Freddie Mac.

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 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.

Revenue Procedure 2018-54 calls for FHFA to determine a deemed-issuance ratio for each calendar year based on the ratio of TBA-eligible securities issued by Fannie Mae and Freddie Mac during the 24-month period ending Oct. 31 of the preceding year.