Fannie Mae and Freddie Mac began their risk-sharing initiatives in 2013 as a way to transfer risk from taxpayers to private investors while the Enterprises remain in conservatorship of the FHFA. Since then, the GSEs have transferred a substantial portion of the credit risk for mortgages totaling hundreds of billions of dollars in unpaid principal balance (UPB).
According to a Urban Institute’s Monthly Chartbook for March 2016, titled “Housing Finance at a Glance,” Fannie Mae and Freddie Mac exceeded their credit risk transfer goals for 2015 which called for them to lay off at least $150 billion and $120 billion, respectively, for two types of transactions. Fannie Mae laid off $187 billion in back-end credit risk on reinsurers during 2015, while Freddie Mac laid off $210 billion.
Since 2013, Fannie Mae has transferred a portion of the credit risk on more than $590 billion in single-family mortgages through all of its risk-transfer programs, which include the Connecticut Avenue Securities (CAS) series and its Credit Insurance Risk Transfer (CIRT) series. The latest transaction under the CAS series was announced last week and priced at $1.03 billion; it was the 11th CAS deal since the program began nearly three years ago. The next CAS transaction is planned for mid-April.
“We’re seeing a positive response from investors, who see strong fundamentals in mortgage credit risk and Fannie Mae mortgage credit risk in particular. The CAS program provides investors with consistent opportunities to benefit from Fannie Mae’s innovative and industry-leading credit risk management approach while gaining exposure to the U.S. housing market,” said Laurel Davis, VP of credit risk transfer, Fannie Mae. “One of our primary areas of focus is to continue to work to expand the investor base, and with this deal we continued to see new investors come into the program.”
“One of our primary areas of focus is to continue to work to expand the investor base, and with this deal we continued to see new investors come into the program.”
Laurel Davis, Fannie Mae
Freddie Mac’s risk-sharing initiatives include the Structured Agency Credit Risk (STACR) series and the Agency Credit Insurance Structure (ACIS) program. Through its credit risk transfer initiatives, Freddie Mac has transferred a substantial portion of credit risk for more than $422 billion in UPB on single-family mortgages. The Enterprise’s investor base has grown to more than 190 unique investors (including reinsurers).
The latest ACIS transaction was announced on Friday, March 25. The latest ACIS transaction provides credit loss protection up to a combined maximum limit of approximately $336 million of losses on single-family loans and transfers much of the remaining credit risk associated with the second STACR debt issuance this year. Through 16 ACIS transactions since the program began in 2013, Freddie Mac has placed approximately $4.3 billion in insurance coverage.
"We are very pleased about the continued partnership Freddie Mac has developed with the reinsurance market. This market has proved to be a durable partner for credit risk transfer," said Kevin Palmer, SVP of Single-Family credit risk transfer for Freddie Mac.
According to Urban Institute, the new 2016 scorecard for the GSEs expresses the goal of targeting 90 percent of newly acquired loans for transfer. The report stated that Fannie Mae's issuance under the CAS series now cover 18.38 percent of its outstanding single-family guarantees; Freddie Mac's issuances under the STACR program cover 27.54 percent of its outstanding single-family guarantees, according to Urban Institute.
Click here to view the Urban Institute’s Chartbook for March.