Fannie, Freddie Continue To Transfer Credit Risk

Government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac continue to transfer credit risk on certain pools of mortgages they hold over to investors and the private insurance industry.

Fannie Mae last week announced that it had completed three credit risk transfer deals that cumulatively represent the largest transaction to date for the company since it started its credit risk transfer program in 2013. In combination, the three deals shifted the risk on loan pools with about $22.5 billion in unpaid principal balance (UPB) to a group of insurers and reinsurers. The pools consisted of  a 30-year, fixed-rate product with a loan-to-value (LTV) between 80% and 97%.

“We are pleased that interest from insurers and reinsurers in our [credit risk transfer] program continues to grow, as demonstrated by our ability to cover this large aggregate pool of loans, and this reflects the confidence that those participants have in Fannie Mae’s strong credit risk management approach,” says Rob Schaefer, vice president of credit enhancement strategy and management for Fannie Mae, in a release. “We’re making solid progress distributing credit risk to private capital and away from Fannie Mae and taxpayers.”

In a separate announcement, sister GSE Freddie Mac, which takes a somewhat different approach to credit risk transfer, reports that it has reached a significant milestone, in that it has transferred the risk on loan pools totaling about $650 billion in UPB since it launched its program in 2013. Of these loan pools, about $500 billion in UPB was associated with single-family loans.

In addition, Freddie Mac has significantly reduced its legacy mortgage credit risk through the securitization and/or sale of more than $50 billion in less liquid and impaired assets from its mortgage-related portfolio, the company reports.


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