Fannie Mae and Freddie Mac initiated credit risk transfer (CRT) programs in 2013 in order to shift some risk away from taxpayers and into the private market. Now, for the first time, they are revealing just how much risk is being transferred.
While the Federal Housing Finance Agency (FHFA), the conservator of Fannie and Freddie, has reported on their credit risk programs in the past, their Credit Risk Transfer Progress Report released yesterday is the first to detail the percentage of acquisitions being covered through CRT and the amount of risk being transferred.
Since 2013, the GSEs have transferred a portion of credit risk on around $2.5 trillion of unpaid principal balance (UPB). The total risk in force (RIF) is $81 billion, and the GSEs have transferred an additional $1.1 trillion in UPB to primary mortgage insurers.
Fannie Mae has transferred about 3.0 percent of the risk on about $1.4 trillion in UPB since 2013, translating to or $42.5 billion in RIF. Freddie Mac has transferred 3.7 percent of the risk on $1.1 trillion in UPB, about $39 billion in total RIF since 2013. Debt issuances have accounted for the majority of RIF for both GSEs—61 percent for Fannie Mae and 71 percent for Freddie Mac.
For the first half of 2018, the GSEs together transferred partial risk on $367 billion of UPB. RIF totaled $12 billion. Debt issuances made up 61 percent of RIF.
Fannie Mae transferred risk on $179 billion in UPB with $5.9 billion total RIF, while at Freddie Mac the total was $188 billion of UPB with RIF totaling $6.2 billion.
The amount of single-family loans targeted for credit risk transfers has grown each year since the CRT program began, starting at 41 percent in 2013 and climbing to 65 percent for 2017. For the first half of this year, the GSEs transferred 77 percent of credit risk on 85 percent of UPB in its single-family new acquisitions.
“The amount of credit risk transferred should continue to increase as the Enterprises continue to innovate and experiment with different structures and attempt to expand the scope of their CRT programs to further reduce risk where economically sensible,” said Melvin L. Watt, Director of the FHFA.
For multifamily loan acquisitions, the GSEs transferred credit risk on 94 percent of loan acquisitions in 2017, with Fannie Mae transferring risk on 28 percent and Freddie Mac transferring risk on 86 percent of acquisitions. The share of credit risk transfer on multifamily acquisitions has varied between 93 percent and 96 percent since 2013.