Freddie Mac and Fannie Mae will cease issuing PCs and MBSs next year and switch to issuing Uniform Mortgage-Backed Securities ("UMBS") next year. This convergence may bring more liquidity to the futures market for mortgage-backed securities. Freddie Mac is offering holders of its existing PCs the opportunity to exchange such securities for UMBSs. In order to further encourage holders of PCs to make the conversion, the Internal Revenue Service ("IRS") has ruled that holders who make the conversion will not be subject to tax on built-in gains in their PCs. Mark Leeds of the New York office of Mayer Brown analyzes this favorable tax development.
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