Fannie Mae and Freddie Mac transferred $18 billion in credit risk on $548 billion mortgages through capital markets, insurance, and pilot credit risk transfer transactions over the course of 2016, according to the Federal Housing Finance Agency’s Credit Risk Transfer Progress Report released Monday.
Of the total amount transferred, 72 percent was through debt issuances, 25 percent was through transactions with insurers and reinsurers, and the remaining was through front-end transactions. This includes lender-collateralized recourse transactions and front-end pilots with mortgage insurer affiliates.
Both GSEs transferred significantly more than in previous years. In 2015, Fannie Mae transferred $239.1 billion in credit risk, compared to 2016’s $332.9 billion. Fannie Mae also transferred nearly a billion more through credit insurance and reinsurance programs than in the year prior. In total, Freddie Mac transferred $181.3 billion in 2015 and $215 billion in 2016.
Last year marked the first time either GSE issues credit risk transfer transactions on loans with 15-year terms. Though Freddie Mac was the only agency to sell a portion of the first dollar of expected credit losses in 2015, both GSEs utilized these types of transactions in 2016.
According to the FHFA, “The Enterprises continue to explore additional credit risk transfer structures that reduce risk to the taxpayer, are economically reasonable, and meet other FHFA credit risk transfer principles.”
The GSEs regularly transfer portions of their credit risks in both single- and multi-family mortgages to the private sector. The FHFA’s Progress Report provides a summary of those transactions.
“Fannie Mae and Freddie Mac have made credit risk transfer a regular part of their business and they continue to improve and expand the scope of their programs and explore different transaction structures,” FHFA Director Melvin L. Watt said. “This report demonstrates the ongoing innovation, the progress being made, and our commitment to transparency as we continue to enhance these programs.”
Since the Credit Risk Transfer program began in 2013, the GSEs have transferred a total of $49 billion in credit risk and $1.4 trillion in unpaid principal balance. Another $731 billion in UPB was transferred to primary mortgage insurers between 2013 to 2016.
To view the full report, visit FHFA.gov.