Credit Risk Transfer Programs Thriving

As highlighted in a recent article in DS News, private investors have been taking on more housing market risk through credit risk transfer (“CRT”) programs since Freddie Mac launched the Structured Agency Credit Risk (“STACR”) series in July 2013. Since its inception, Freddie Mac has transferred credit risk on more than $385 billion of principal outstanding in single-family mortgages backed by the government sponsored enterprise (“GSE”) through not only the STACR program but also the Whole Loan Security and Agency Credit Insurance Structure programs. As a result, Freddie Mac’s investor base has grown to approximately 190 unique investors and Freddie’s CR program has raised close to $16 billion to protect taxpayers from future losses due to mortgage defaults.

According to Kevin Palmer, Senior Vice President of Credit Risk Transfer for Freddie Mac, time has taught the GSE valuable lessons about engaging private investors in CRT transactions. As stated in the article, ”private investment segments are willing to take on credit risk at reasonable prices; it is important for Freddie Mac to retain a portion of the credit risk in its CRT programs in order to align interests with investors; offering multiple types of CRT products allows options to transfer risk across a range of economic environments; and communication is critical with investors in order to share with them Freddie Mac’s quality control and loan servicing processes as well as its practices and standards.”

Fannie Mae has followed Freddie’s suit, launching the Connecticut Avenue Securities series in September 2013 and the Credit Insurance Risk Transfer program the following year. Through the former program, the Fannie Mae has sold more than $12.4 billion in securities to private investors, covering $438 billion worth of mortgage loans.

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