FHFA: Majority of GSE Credit Risk Shifts to Private Market

The Federal Housing Finance Agency said Fannie Mae and Freddie Mac have transferred nearly $2.5 trillion of credit risk to the private market since 2013.

The FHFA Credit Risk Transfer Progress Report said Since the GSE credit risk transfer programs began in 2013, through the end of June, Fannie Mae have transferred a portion of credit risk on $2.5 trillion of unpaid principal balance with a combined Risk in Force of nearly $81 billion. Additionally, $1.1 trillion of UPB credit risk has been transferred to primary mortgage insurers in the same period.

Additionally, the report said in the first six months of 2018, the GSEs transferred risk on $367 billon of UPB with a total RIF of $12 billion. Debt issuances, such as Structured Agency Credit Risk and Connecticut Avenue Securities, accounted for 61 percent of RIF.

FHFA said Fannie Mae transferred risk on $179 billion of UPB, with a total RIF of $5.9 billion. Freddie Mac transferred risk on $188 billion of UPB with a total RIF of $6.2 billion.

“As evidenced in this report, through CRT and mortgage insurance, the majority of underlying credit risk on mortgages targeted for CRT has been transferred to private investors,” said FHFA Director Melvin L. Watt. “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.”

The report can be accessed at https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/CRT-Progress-Report-2Q18.pdf.