GSEs Push Forward on Risk Sharing
After last year’s false start, the government-sponsored enterprises plan to introduce risk-sharing bonds this year.
Speaking at the American Securitization Forum’s 2013 conference, Mark Hanson, senior vice president of securitization at Freddie Mac, said the agencies hope to issue pilot transactions this year before setting up a more “programmatic approach.”
“The commitment is as strong as ever to get that done in 2013,” he added, saying the GSEs do not have to wait until they have launched the single securitization platform to move forward on this product, although once that infrastructure were in place the issuance of these bonds could be sizable.
Risk-sharing bonds would be a way for Fannie and Freddie to hand over more residential mortgage risk to the private sector. As such, they would offer higher yields than deals now fully guaranteed by the GSEs.
They were originally slated to launch last year but an insurance component would have made the deals commodity pools for regulatory purposes, putting them under the purview of the Commodity Futures Trading Commission. This would have implied further regulatory burden.
Private sector players in the mortgage space have generally welcomed the single securitization platform being set up by Fannie and Freddie, although there are still questions and concerns about the final character of its ownership and governance, which has yet to be worked out, according to Timothy Yanoti, senior vice president at Fannie Mae.
A single platform will not translated into a single security, panelists said. Laurie Goodman, senior managing director at Amherst Securities, said that both originators and investors prefer having the choice between a Fannie or Freddie security.
But the difference between these securities, at least on the spread front, may be shrinking. Goodman said she expected prices to converge as the once-faster speeds of Freddie deals are slowing down to the pace of Fannie transactions. The liquidity premium enjoyed by Fannie securities, however, will remain.