For the last three years, the GSEs have engaged in a number of credit risk sharing transactions in order to transfer more of the risk on the loans it guarantees to private investors.
Most of the credit-risk transactions conducted by Fannie Mae and Freddie Mac have been of the back-end variety, meaning the loans where for which the risk is transferred are already on the GSEs’ balance sheets—as opposed to front-end risk sharing, which means the credit risk is transferred to a third party at the time the loan is originated—prior to the GSEs’ acquisition of the underlying mortgage.
On Wednesday, the GSEs' conservator, the Federal Housing Finance Agency (FHFA), issued a Single-Family Credit Risk Transfer Request for Input (RFI) for their ongoing analysis of front-end credit risk transfer transactions. The RFI seeks feedback from stakeholders on proposals to adopt more front-end structures and other credit risk transfer policy issues.
Also on Wednesday the Agency published its Credit Risk Transfer Progress Report for June 2016, which provides an overview of how the GSEs share credit risk with the private sector through credit risk transactions and includes an update on the status and volume of credit risk transfers through the end of 2015.
The progress report also includes a discussion on different transaction structures, investor participation, and the cost of credit risk transfer transactions to the GSEs, according to the FHFA.
“The Credit Risk Transfer Progress Report demonstrates transparency and documents that there has been a great deal of progress in the credit risk transfer market in a short period of time, even though the market is still relatively young,” FHFA Director Melvin L. Watt said. “The Request for Input demonstrates our commitment to build upon the progress and expand the array of credit risk transfer products. Feedback from stakeholders is critical as we explore additional ways to enhance these programs and expand the investor base.”
The deadline for parties to provide input on the topics identified in the RFI is August 29, 2016. Input can be submitted electronically or via mail to Federal Housing Finance Agency, Office of Financial Analysis and Modeling, 400 7th Street, S.W., 9th floor, Washington, D.C., 20219.
Click here to view the FHFA’s Request for Input.
Click here to view the FHFA’s Credit Risk Transfer Progress Report for June 2016.