Growth in GSE CRT Deals Attracts Interest

According to a recent article in American Banker, Fannie Mae and Freddie Mac’s (GSEs') increased use of credit risk transfer (CRT) deals has drawn the attention of many investors. The deals offer investors the opportunity to purchase “debt securities designed to absorb the credit losses on GSE loan pools.” This allows the GSEs to reduce overall exposure to mortgage default risk.

Since mid-2013 Fannie and Freddie have issued $622 billion and $589 billion respectively in CRT deals. Chris Hentemann, chief investment officer at 400 Capital Management recently called this program “one of the most exciting innovations in the mortgage market in my career.” According to Hentemann, 400 Capital Management has already purchased credit risk on $800 million worth of mortgages from the GSEs.

Excitement, however, has also been joined by skepticism, as new proposals for further reducing the credit risk born by the GSEs look towards an increased reliance on mortgage insurers. The Federal Housing Finance Administration (FHFA) has considered risk sharing structures which would use “deep MI”. As a result, mortgage insurance firms would cover up to 50% of losses on a pool of loans.

SFIG submitted a comment letter in response to the FHFA's Request for Information on CRT strategies on October 13, 2016, and participated in the submission of a joint trade comment letter with other organizations. Please contact Daniel.Goodwin@sfindustry.org for questions regarding SFIG’s response to the FHFA. If you are interested in joining SFIG’s GSE Reform Subcommittee, please contact committees@sfindustry.org.

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