Secondary Market

Freddie Mac, in conjunction with J.P. Morgan and BNP Paribas as co-lead managers and bookrunners, recently announced the price of its fourth Structured Agency Credit Risk (STACR) debt note offering at $787.5 million. Mortgages in the reference pool have an unpaid principle balance of $31.6 billion. STACR is an ongoing effort to transfer a portion of its mortgage credit risk to private investors.

Fannie Mae announced on Tuesday that they have sold 13,500 loans with a cumulative unpaid principle balance of $2.99 billion in their third reperforming loan sale. Loans were divided into three pools, and sold to a single bidder: DLJ Mortgage Capital, Inc. Fannie Mae expects to close on the bid of this sale July 21.

On Monday, a unanimous Supreme Court decision could have vast implications for the mortgage and loan industry, particularly the secondary market, unless the Fair Debt Collection Practices Act is amended by Congress. The petitioners brought their case in front of the Supreme Court in an appeal of the 4th Circuit Court ruling in favor of the respondent. Justice Neil Gorsuch delivered his first opinion since his conferral to the Court.

The Financial CHOICE Act, originally introduced on April 26, 2017 by Representative Jeb Hensarling (R-Texas), Chairman of the House Financial Service Committee, passed the House of Representatives on Wednesday. The CHOICE Act is the Republican response to reforms put in place after the 2008 economic collapse. The bill significantly amends the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

For four months, the Department of the Treasury, GSEs, and Federal Housing Finance Agency have been in disagreement with Fannie and Freddie investors on where profits should be directed. Though the D.C. Circuit affirmed a lower court’s ruling that actions taken under the FHFA’s conservatorship of the GSEs cannot be challenged in court, the shareholders are now taking matters to the full D.C. Circuit for a rehearing. The FHFA and Treasury are now urging the D.C. Circuit not to modify its original ruling.

The Federal Housing Finance Agency on Thursday released its third Enterprise Non-Performing Loan Sales Report, which lists all the sales of all non-performing loans from Freddie Mac and Fannie Mae to the private sector through December 31, 2016. The report tracks total loan sales, total number delinquent assents unloaded, and time of delinquency. It also strives to track borrower outcomes and measure how many properties were foreclosed on, how many avoided foreclosure, and the difference between homes that were sold to third parties and benchmark NPLs.

Fannie Mae's April monthly summary was recently released showing slight growth for the month. Though temporarily, their Gross Mortgage portfolio increased at a compound annualized rate of 52.5 percent. Conversely, the Conventional Single-Family Serious Delinquency Rate decreased five basis points.

Semper Capital, a independent investment management firm, believes that the Credit Risk Transfer market continues to be a compelling investment vehicle. Following the mortgage crisis, the Federal Housing Finance Agency has mandated a number of changes affecting the government-sponsored enterprises (GSEs), reducing the risk of losses that the GSEs may pose to taxpayers. Semper believes that the CRT market remains well supported and the collateral and structural benefits are high.

Fannie Mae announced that it secured commitments for a front-end Credit Insurance Risk Transfer (CIRT) transaction. The risk transfer will have been committed prior to Fannie Mae’s acquisition of the covered loans, so the insurance coverage will be effective as soon as loans are acquired. This will begin in the 2017 second-quarter deliveries and is expected to be filled over the course of nine months.

Credit risk transfer (CRT) or sharing is the process in which the government-sponsored enterprises bundle up the mortgages they buy from lenders and sell a portion of the risk to private investors. Instead of the GSEs shouldering the loan risk alone, selected investors help offset any potential risk from loan defaults. CRT began as a test in 2012 and is now quickly ramping up as investor interest and governmental oversight grows. Governmental oversight makes sense—we don’t want another 2007. But why are more investors becoming so interested in CRT?