FHFA releases first quarter credit risk transfer report

Fannie Mae and Freddie Mac transferred $5.5 billion of credit risk on mortgages with an unpaid principal balance (UPB) of $174 billion through capital markets, reinsurance, and front-end reinsurance transactions in the first quarter, according to the Federal Housing Finance Agency’s (FHFA) Credit Risk Transfer Progress Report.

This brings the total since the program began in 2013 to more than $54 billion of credit risk transferred on $1.6 trillion UPB.

The report gives a comprehensive picture of how Fannie Mae and Freddie Mac transfer a portion of credit risk to the private sector through a variety of transactions in the single-family market.

The report also shows that in 2017 both Fannie Mae and Freddie Mac modified the first loss structure of their debt issuances to, in general, retain the first 50 basis points of losses, mostly expected credit losses. This means that Fannie Mae and Freddie Mac are now selling most of the credit losses between 50 to 100 basis points.

The Credit Risk Transfer Progress Report provides data, definitions, and FHFA’s core principles in overseeing the Enterprise CRT programs. The report is updated regularly.

Fannie Mae and Freddie Mac started to implement their credit risk transfer (CRT) programs in 2013 and now transfer to private investors a substantial amount of the credit risk of new acquisitions they assume for loans in targeted loan categories. The CRT programs include credit risk transfers via debt issuances, insurance/reinsurance transactions, senior-subordinate securitizations, and a variety of lender collateralized recourse transactions.