Credit Risk Transfer and De Facto GSE Reform
29 Pages Posted: 10 Dec 2018
Date Written: December 2018
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: Suggested Citation