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Fannie Mae: Even Big Lenders Have Questions about Front-End Risk Sharing 

October 19, 2016

Investors Unite, Value Walk

The more private sector players think about front-end risk sharing, the more consensus there is on proceeding with caution.

Since 2012, the Federal Housing Finance Agency has required Fannie and Freddie to transfer a portion of the credit risk on the loans they acquire to the private sector. The official rationale for this policy is to reduce the chance that taxpayers would again be forced to shore up the GSEs. In fact, credit risk sharing appears to be part of a strategy to force Fannie and Freddie to surrender their business in order to make it easier to achieve the Treasury Department’s goal of winding down the GSEs. Since 2013, Fannie and Freddie have transferred nearly 90 percent of the credit risk on eligible loans to private market investors such as banks and mortgage insurers. Until now, most of these transactions have been “back-end” transfers – where Fannie and Freddie transfer credit risk on loans they have already acquired and securitized. Over the summer, FHFA sought input on transferring the credit risk when loans are originated, or at the “front end.”

Last week, the American Bankers Association sent a letter to FHFA that seemed to endorse the dramatic changes in the multi-trillion-dollar mortgage market by regulatory fiat. Read more

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