GSE regulator creates credit risk transfer capital retention tool

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The Federal Housing Finance Agency has created a spreadsheet to provide clarity regarding capital amounts the government-sponsored enterprises will have to retain for credit risk transfer deals under its reproposed rule.

"The tool shows how CRT formulas work and allows users to input assumptions and calculate the amount of capital the enterprises are required to hold across retained risk exposures in different types of CRT transactions," the FHFA said in a press release.

"This tool provides transparency about the technical aspects of current CRT calculations as well as under the reproposed rule."

The latest proposed rule included what the FHFA defined as "additional refinements that ensure post-CRT capital requirements are prudent and reflect the credit risk of the exposures retained," while still giving Fannie Mae and Freddie Mac "meaningful" relief for doing these risk management transactions.

In analyzing the period ended Sept. 30, 2019, the FHFA calculates that, for the risk-based requirements only, without CRT deals, the GSEs combined would have to hold $134.9 billion of capital against net credit risk. But by using CRTs, the amount was reduced to $112.8 billion.

Risk weights for the GSEs' single-family mortgage exposure would have been 26% before any CRT deals, and 24% taking into account adjustments for those transactions, according to the FHFA. For multifamily loans in the GSE portfolios, the risk weights would have been 51% before CRT, and 30% including those deals.

There are five tabs in the spreadsheet: generic single-family CRT, Freddie Mac's Structured Agency Credit Risk and Agency Credit Insurance Structure programs, Fannie Mae's Connecticut Avenue Securities and Credit Insurance Risk Transfer programs, Fannie's multifamily Delegated Underwriting and Servicing program, and Freddie's multifamily K-Deals.

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Housing finance reform Credit risk transfers FHFA Fannie Mae Freddie Mac GSEs Multifamily MBS