CRT Deal Monitor: Understanding When Credit Becomes Risky
This analysis tracks several metrics related to deal performance and credit profile, putting them into a historical context by comparing the same metrics for recent-vintage deals against those of ‘similar’ cohorts in the time leading up to the 2008 housing crisis.
Some of the charts in this post have interactive features, so click around! We’ll be tweaking the analysis and adding new metrics in subsequent months. Please shoot us an email if you have an idea for other metrics you’d like us to track.
The seasonal nature of recoveries is an easy-to-spot trend in our delinquency outcome charts (loan performance 6 months after being 60 days-past-due). Viewed from a very high level, both Fannie Mae and Freddie Mac display this trend, with visible oscillations in the split between loans that end up current and those that become more delinquent (move to 90+ days past due (DPD)). This trend is also consistent both before and after the crisis – the shares of loans that stay 60 DPD and move to 30 DPD are relatively stable. You can explore the full history of the FNMA and FHLMC Historical Performance Datasets by clicking the 6-month roll links below, and then clicking the “Autoscale” button in the top-right of the graph.
This trend is salient in April of 2019, as both Fannie Mae Connecticut Avenue Securities (CAS) and Freddie Mac Structured Agency Credit Risk (STACR) have seen 6 months of steady decreases in loans curing, and a steady increase in loans moving to 90+ DPD. While both CAS and STACR hit lows for recovery to current – similar to lows at the beginning of 2018 – it is notable that both CAS and STACR saw multi-year highs for recovery to current in October of 2018 (see Delinquency Outcome Monitoring links below). While continued US economic strength is likely responsible for the improved performance in October, it is not exactly clear why the oscillation would move the recoveries to current back to the same lows experienced in early 2018.
Current Performance and Credit Metrics
The simplest metric we track is the share of loans across all deals that is 60+ days past due (DPD). The charts below compare STACR (Freddie) vs. CAS (Fannie), with separate charts for high-LTV deals (G2 for CAS and HQA for STACR) vs. low-LTV deals (G1 for CAS and DNA for STACR).
For comparative purposes, we include a historical time series of the share of loans 60+ DPD for each LTV group. These charts are derived from the Fannie Mae and Freddie Mac loan-level performance datasets. Comparatively, today’s deal performance is much better than even the pre-2006 era.
Low LTV Deals 60 DPD
High LTV Deals 60 DPD
Delinquency Outcome Monitoring:
The tables below track the status of loans that were 60+ DPD. Each bar in the chart represents the population of loans that were 60+ DPD exactly 6 months prior to the x-axis date.
The choppiness and high default rates in the first few observations of the data are related to the very low counts of delinquent loans as the CRT program ramped up.
STACR 6 Month Roll
CAS 6 Month Roll
The table below repeats the 60-DPD delinquency analysis for the Freddie Mac Loan Level Performance dataset leading up to and following the housing crisis. (The Fannie Mae loan level performance set yields a nearly identical chart.) Note how many more loans in these cohorts remained delinquent (rather than curing or defaulting) relative to the more recent CRT loans.
Fannie Performance 6 Month Roll
Freddie Performance 6 Month Roll
Deal Profile Comparison:
The tables below compare the credit profiles of recently issued deals. We focus on the key drivers of credit risk, highlighting the comparatively riskier features of a deal. Each table separates the high–LTV (80%+) deals from the low–LTV deals (60%-80%). We add two additional columns for comparison purposes. The first is the ‘Coming Cohort,’ which is meant to give an indication of what upcoming deal profiles will look like. The data in this column is derived from the most recent three months of MBS issuance loan–level data, controlling for the LTV group. These are newly originated and acquired by the GSEs—considering that CRT deals are generally issued with an average loan age between 6 and 15 months, these are the loans that will most likely wind up in future CRT transactions. The second comparison cohort consists of 2006 originations in the historical performance datasets (Fannie and Freddie combined), controlling for the LTV group. We supply this comparison as context for the level of risk that was associated with one of the worst–performing cohorts.
Deal Tracking Reports:
Please note that defaults are reported on a delay for both GSEs, and so while we have CPR numbers available for the most recent month, CDR numbers are not provided because they are not fully populated yet. Fannie Mae CAS default data is delayed an additional month relative to STACR. We’ve left loss and severity metrics blank for fixed-loss deals.