Credit Risk Transfer and De Facto GSE Reform

36 Pages Posted: 1 Mar 2018  

David Finkelstein

Annaly Capital Management, Inc.

Andreas Strzodka

Annaly Capital Management, Inc.

James I. Vickery

Federal Reserve Bank of New York

Date Written: February 26, 2018

Abstract

We summarize and evaluate Fannie Mae and Freddie Mac’s credit risk transfer (CRT) programs, which have been used since 2013 to shift a portion of credit risk on more than $1.8 trillion of mortgages to private sector investors. We argue that the CRT programs have been successful in reducing the exposure of the federal government to mortgage credit risk without disrupting the liquidity or stability of mortgage secondary markets. In the process, the programs have created a new financial market for pricing and trading mortgage credit risk, which has grown in size and liquidity over time. The CRT programs provide an important building block to help facilitate reform of the U.S. housing finance system.

Keywords: mortgage, credit risk transfer, securitization, Fannie Mae, Freddie Mac, GSE

JEL Classification: G10, G18, G21, G23, G28

Suggested Citation

Finkelstein, David and Strzodka, Andreas and Vickery, James I., Credit Risk Transfer and De Facto GSE Reform (February 26, 2018). FRB of New York Staff Report No. 838. Available at SSRN: https://ssrn.com/abstract=3130335 or http://dx.doi.org/10.2139/ssrn.3130335

David Finkelstein

Annaly Capital Management, Inc. ( email )

1211 Ave of the Americas
New York, NY 10036
United States

Andreas Strzodka

Annaly Capital Management, Inc. ( email )

1211 Ave of the Americas
New York, NY 10036
United States

James Ian Vickery (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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