Magazine article American Banker

Freddie Focusing on Credit Risk Transfers as Portfolio Winds Down

Magazine article American Banker

Freddie Focusing on Credit Risk Transfers as Portfolio Winds Down

Article excerpt

Byline: Brian Collins

WASHINGTON -- Freddie Mac is ramping up its use of credit risk transfers, completing $215 billion in single-family transfers last year, up to $600 billion since 2013.

Donald Layton, the government-sponsored enterprise's CEO, has embraced the transfers, where investors bid on taking a first-loss position on mortgages guaranteed by Freddie that go into default. So far the deals have generated $25 billion in loss protection against mortgage defaults.

In evaluating these transactions, Freddie executives have to judge how much loan revenue they can give up and still get the loss protection they need.

Freddie is "re-engineering the guarantee businesses to heavily employ credit risk transfers and to fall away from the historic buy and hold business model," Layton said Thursday in releasing Freddie's 2016 annual and fourth-quarter earnings report.

Freddie also has completed $180 billion of risk transfer transactions involving multifamily mortgages since 2013, including $51 billion in 2016.

"As a result, new multifamily loans coming on Freddie's balance sheet pose little residual risk to taxpayers," Layton said.

The Freddie CEO also reported progress in reducing the GSE's investment portfolio, which held $737 billion in mortgage-related assets back in 2008.

The investment portfolio declined by nearly $50 billion in 2016 to $298 billion. That's getting closer to the $250 billion cap under the conservatorship agreement with the federal government. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.