Home / Daily Dose / Ratings Agency Publishes Report on Freddie Mac Loan Loss Data
Print This Post Print This Post

Ratings Agency Publishes Report on Freddie Mac Loan Loss Data

Freddie Mac Fitch Ratings Risk-SharingFitch Ratings has published a special report providing insights into Freddie Mac's loan loss data comparing observed loss performance for Agency loans to both non-Agency loans and the fixed loss severity schedules the Enterprise uses in risk-sharing transactions, according to announcement from Fitch Ratings.

Differences in loss severity between Agency and non-Agency loans can be attributed to loan attributes, such as property values and mortgage insurance, instead of procedural differences or differences in operational risk, according to Fitch. The report concluded that the underlying drivers of loss severity are the same across Agency and non-Agency loans based on the discovery that loss severities are comparable when loan attributes are controlled.

Freddie Mac first added loan loss data to its single-family residential loan-level historical dataset in November 2014 in order to increase transparency to the market, anticipating an actual credit loss offering in 2015. The dataset includes loan-level loss information such as expenses and recoveries as well as credit performance data for 30-year fixed-rate single-family mortgages.

"It is important for investors to have this expanded view of credit risk, especially as we continue to grow and evolve our credit risk offerings," said Kevin Palmer, VP of single-family strategic credit costing and structuring for Freddie Mac, at the time the loan-loss data was added in November. "Having data openly available in the marketplace allows us to expand the amount of risk transferred to private investors."

Freddie Mac will be releasing historical performance data with the goal in mind of switching to an actual framework. According to Fitch, Freddie Mac's risk sharing transactions to date have passed losses from defaulted loans onto investors using a pre-determined loan loss severity schedule.

The Fitch report also found that observed agency severities generally compare with the fixed severity schedules used for 60 to 80 percent loan-to-value risk-sharing transactions – and that those observed agency severities are generally lower than the fixed levels for 81 to 95 percent loan-to-value transactions. Loss severities in an actual loss transaction may differ from aggregate historical data based on the attributes of the loans, such as the particular credit, leverage, and mortgage insurance profile of each loan pool that will drive credit enhancement requirements.

A survey released earlier this week by the Collingwood Group and the Five Star Institute as part of the March 2015 Mortgage Industry Outlook Report found that 85 percent of mortgage industry professionals polled said they would like to see Fannie Mae and Freddie Mac involved in more risk-sharing transactions. Such transactions allow private market participants to invest in the credit performance of the GSEs' book of business, thus keeping the private securitization market involved and ultimately limiting taxpayer risk while Fannie Mae and Freddie Mac remain under conservatorship of the FHFA.

The Five Star Institute is the parent company of DS News and DSnews.com.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

Check Also


Study Shows Americans Ill-Prepared for Flooding

During a time of increased mortgage delinquencies, storm surges can have an even more devastating effect on those who are underinsured, experts say.


Featuring daily updates on foreclosure, REO, and the secondary market, DS News has the timely and relevant content you need to stay at the top of your game. Get each day’s most important default servicing news and market information delivered directly to your inbox, complimentary, when you subscribe.