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GSEs: Sharing Risk with Risky Players Like Wells Fargo 

September 16, 2016

Investors Unite, Value Walk

As a scandal at Wells Fargo renews concerns about the banking industry’s apparently unshakable penchant for shadiness and greed, Fannie Mae and Freddie Mac continue to report steady progress in making more of the credit risk in their portfolios of home loans available to private investors, such as mortgage insurers and, of course, banks. Once again, caution and scrutiny is warranted.

Yesterday Freddie Mac announced the latest tranche of its Structured Agency Credit Risk (STACR) debt notes, the mechanism by which Freddie has been transferring a significant portion of its mortgage credit risk on certain groups of loans to private investors. Freddie reports more than 200 unique investors, including insurers and reinsurers, have assumed a significant portion of credit risk on nearly $530 billion of unpaid balance principal on single-family mortgages. Freddie reported it is partnering with Bank of America Merrill Lynch and Goldman, Sachs & Co. in facilitating these transactions. Late last month, Fannie Mae announced it had transferred a portion of the credit risk on single-family mortgage loans worth $741.8 billion to private investors through its Connecticut Avenue Securities (CAS) transactions.

These figures suggest there is demand in the financial marketplace for Fannie and Freddie’s business. Indeed, Fannie and Freddie’s offerings might represent a good deal for some investors but it is important to ask, as we have before, whether or not they are a good deal for Fannie and Freddie. Read more

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