Agency Credit Risk Sharing Transactions Expected to Ramp Up in 2016

According to a recent article by Nasdaq, Fannie Mae and Freddie Mac (“GSEs”) are expected to ramp up sales of credit risk sharing transactions that will help transfer housing market risk away from the public sector. The Federal Housing Finance Agency, through its 2016 Scorecard, stated that the GSEs have a mandated goal to transfer the risk on 90 percent of the unpaid principal balance of the riskiest mortgages they back to private investors this year. The advent of Fannie Mae’s Connecticut Avenue Securities and Freddie Mac’s Structured Agency Credit Risk transactions has given birth to a new asset class, according to the article, and could save taxpayers billions in the event of another crisis.

According to the article, “to the extent that yield-starved investors do want to take on [mortgage credit] risk, Fannie’s and Freddie’s new securities are the only outlet.” 

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