Credit Risk Transfer and De Facto GSE Reform

29 Pages Posted: 10 Dec 2018

See all articles by David Finkelstein

David Finkelstein

Annaly Capital Management, Inc.

Andreas Strzodka

Annaly Capital Management, Inc.

James I. Vickery

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: December 2018

Abstract

The Fannie Mae and Freddie Mac credit risk transfer (CRT) programs, now in their fifth year, shift a portion of credit risk on more than $1.8 trillion of mortgages to private-sector investors. This study summarizes and evaluates the CRT programs, finding that they have been successful in reducing the exposure of the government-sponsored enterprises and the federal government to mortgage credit risk without disrupting the liquidity or stability of mortgage secondary markets. The programs have also created a new financial market for pricing and trading mortgage credit risk, which has grown in size and liquidity over time. In doing so, the CRT programs provide a valuable step forward in the 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 Ian, Credit Risk Transfer and De Facto GSE Reform (December 2018). Economic Policy Review, Vol. 24, No. 3, 2018, Available at SSRN: https://ssrn.com/abstract=3298986 or http://dx.doi.org/10.2139/ssrn.3298986

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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