Credit Risk Transfer in a New World – The Waterfall of Risk Falls Squarely on Private Capital

Last month I highlighted the role of the front-end insurance risk share process around Credit Risk Transfer (CRT).  I reviewed what the front-end risk share model is in the current state and noted the expanded efforts underway to broaden the pool of MI’s and reinsurers as counterparties t o expand the front-end offerings.  This is in addition to the already successful back-end CRT which has found great success thus far.  So, the key question for 2017 is what does CRT look like in a post housing reform environment where much of the capital at risk is not the government credit guarantee but is comprised of private capital? ShareTweetShare+1

Credit Risk Transfer: Front End Execution – Why Does It Matter?

The FHFA issued an RFI to solicit feedback from stakeholders on proposals from the GSEs to adopt additional front-end credit risk transfer structures and to consider additional credit risk transfer policy issues. There is firm interest in this new and growing execution for risk transfer by investors who have confidence in the underwriting and servicing of mortgage loans through new and improved GSE standards. ShareTweetShare+1