Since 2013, Fannie Mae and Freddie Mac have participated in back-end credit risk transfer initiatives on single-family mortgage loans in order to encourage more participation of private capital investors and reduce risk to taxpayers.
Fannie Mae’s main credit risk transfer initiative has been the Connecticut Avenue Securities (CAS) series, while Freddie Mac’s has been the Structured Agency Credit Risk (STACR) program. The FHFA’s 2015 conservatorship scorecard required Fannie Mae to lay off $150 billion in credit risk and Freddie Mac to lay off $120 in credit risk during 2015—and both GSEs not only met but exceeded that goal, according to Urban Institute’s March 2016 Chartbook.
Fannie Mae laid off $187 billion in credit risk during 2015, exceeding the goal by $37 billion, while Freddie Mac laid off $210 billion in credit risk, exceeding its goal by $90 billion.
According to the Urban Institute's April 2016 Chartbook released this week, the FHFA's 2016 scorecard calls for the GSEs to target 90 percent of newly-acquired single-family mortgages for transfer.
According to the April Chartbook, CAS issuances by Fannie Mae now cover more than 20 percent of its outstanding single-family mortgage guarantees (covering 12 CAS offerings, through April 2016). Freddie Mac’s 19 STACR offerings through March 2016 cover more than 27 percent of its single-family mortgage guarantees.
“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.”
Last week, Freddie Mac announced its intention to sell its 20th STACR debt notes offering, worth $916 million and containing a pool of recently-acquired single-family mortgages with an unpaid principal balance (UPB) of approximately $30 billion.
“For Freddie Mac, credit risk transfer is not a ‘pilot’ anymore. It is integrated into our entire business model,” Freddie Mac CEO Donald Layton said late last year. “Depending upon how you measure it, in Single-Family, we are selling off in the range of 2/3 or 3/4 of the non-catastrophic risk. Single-family risk transfer was zero a few years ago by comparison. Now it's a fast-moving field. The instruments we use are growing and evolving. We're also doing this with sound economics. It's very exciting.”