Because Ginnie Mae mortgage-backed securities are backed by the full faith and credit of the U.S. government, investors are not subject to credit losses. However, the potential for non-performing loan buyouts creates an additional layer of prepayment risk. As with any prepayment, investors receive the unpaid principal balance of the loan that goes through buyout....
The GSE NPL sales program gives investors the opportunity to profit from investing in non-performing loans from Fannie Mae and Freddie Mac and maximizing the number of loans they can get to re-perform. Freddie Mac and Fannie Mae (the GSEs) have been selling non-performing loans (NPLs) since 2014 and 2015, respectively, to reduce their holdings of less liquid non-performing assets and gain favorable execution over holding the loans as they have done in the past.
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?
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.
As we look forward to 2017 and the critical issues facing the nation’s housing finance system, one of the paramount matters will be the ongoing development of the Credit Risk Transfer (CRT) initiative.
In the aftermath of the housing crisis, Fannie Mae and Freddie Mac issued repurchase requests on nearly $100 billion in mortgages. Not surprisingly, this caused many lenders to look toward the future with uncertainty as to whether repurchases would abate or continue to abound. In the crisis era, the government-sponsored enterprises (GSEs) could at any time in the lifespan of a loan issue a repurchase request as part of their representation and warranty policies, even when a loan had been performing for many years. This created a tremendous amount of pressure on lenders that were unable to estimate and quantify the potential repurchases that would come their way.