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Time For Change: GSE Credit-Risk Sharing on the Front End 

September 28, 2016

Brian Honea, MReport

Fannie Mae and Freddie Mac have been at the forefront of credit risk sharing initiatives since 2013, having transferred to private investors a portion of the credit risk on mortgages with UPB totaling more than $1 trillion between them through various credit risk sharing programs.

Nearly all of those credit risk transactions conducted by the GSEs have been of the back-end variety, however, meaning they have occurred after the mortgages are already on the GSEs' balance sheets. That changed on Monday, however, when Freddie Mac announced a new pilot front-end credit risk transfer offering, Freddie Mac Deep MI CRT.

With front-end transactions, the credit risk is transferred before the loans hit the GSEs’ balance sheets. The Deep MI CRT provides additional coverage beyond primary mortgage insurance on 30-year fixed rate mortgages with LTVs between 80 and 95 percent, and the coverage is placed immediately when the loan is sold to Freddie Mac. All transactions are conducted via a competitive, transparent auction process, according to Freddie Mac. Read more

 
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