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Washington, D.C. – The Federal Housing Finance Agency (FHFA) today published a report on the performance of Fannie Mae's and Freddie Mac's (the Enterprises') single-family credit risk transfers (CRT). The report focuses on securities issuance and insurance/reinsurance credit risk sharing vehicles, which account for about 90 percent of all CRT issuance to date.
In 2019, FHFA called for a comprehensive review of the Enterprises' CRT programs for the first time since their inception in 2013. As an initial step toward that objective, this report estimates the historic and projected net costs of the Enterprises' CRTs, discusses the performance of CRT vehicles during the COVID-19 pandemic, and identifies areas for research and analysis to clarify CRT-related costs and benefits and assess potential risks to the Enterprises, their missions, or the housing finance markets.
“Given the size and complexity of the CRT market, this report is an important step to fulfill FHFA's statutory duties as a prudential regulator. The report is especially timely as it incorporates initial lessons from the COVID-19 stress and raises issues related to potential changes in the design of CRT structures while the Enterprises continue building capital. The findings of this report, and the research that it calls for, will inform FHFA's and the Enterprises' decisions about how best to utilize CRT in the future," said Director Mark Calabria.
Key findings from the report include:
The report identifies several areas beyond its scope that are in need of research and analysis to inform the future direction of the CRT programs: (1) more accurate measurement of the amount of credit risk transferred via CRTs over time, as well as CRT-related costs and benefits; (2) the Enterprises' exposure to counterparty risk through insurance/reinsurance CRTs and the costs, benefits, and potential risks of the Enterprises' approaches to mitigate counterparty risk; (3) the efficacy of, and potential costs and benefits of innovations to, certain features of CRT structures; and (4) the value of the information about credit risk that has been and can be derived from CRT pricing.
Link to report
Media: Raffi Williams Raffi.Williams@FHFA.gov / Adam Russell Adam.Russell@FHFA.gov
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