The third enlarged Freddie Mac deal confirms CRT demand is again on monitor

A string of heightened single-family home credit risk transfer deals with Freddie Mac this summer suggests that investor interest in them has become consistent again after stalling in the early days of the pandemic.

On Tuesday, Freddie Mac completed a structured agency credit risk transaction called STACR 2020-DNA4. This was the third in a series of transactions that had to be stepped up since March to meet demand.

Specifically, Freddie added an additional $ 50 million to the B-1 tranche – which was originally valued at $ 250 million. That brought its total size to $ 300 million.

"The market was proving to be quite resilient and ready to start new issues much faster than any of us expected," said Mike Reynolds, vice president of Freddie, in an interview last month when the issue first resumed.

Whether or not the government-sponsored companies would continue to use structured credit risk transfers was an open question given the coronavirus-related market disruption and the treatment of CRT under the proposed GSE capital rules.

The Federal Housing Finance Agency, which until this year is the regulator and curator of the GSE, has promoted the use of structured CRT as one of the means of protecting taxpayers by sharing risk with the private sector.

However, things changed last year when the FHFA released its 2020 Scorecard in which the FHFA requested the GSEs to conduct a "comprehensive review" of the CRT program under its leadership, finding that the review was a cost-benefit Analysis would involve.

The capital rule proposed by the FHFA, which would make the CRT less attractive to the GSEs in the event of closure, is still pending. The FHFA accepts comments on the rule by the end of the month.

The GSE's use of risk-sharing funds such as structured CRTs dates back to the Obama administration, and over the years Freddie and Fannie's involvement in the market has increased significantly.

In 2019, Fannie transferred $ 488 billion at risk from reference pools of mortgages via CRT, and Freddie Mac transferred $ 220 billion, according to the FHFA.

Reynolds would like Freddie Mac to keep issuing CRT deals, given the investments he's made in them since 2013.

"We have worked to cultivate this CRT market," said Reynolds. "We attach great importance to being a stable issuer."

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