Scorecard disparity leads Fannie Mae to tweak its multifamily CRT mix

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A wide gap emerged between Fannie Mae and Freddie Mac on a Federal Housing Finance Agency scorecard item, and that prompted Fannie to diversify its multifamily risk sharing efforts.

Last year as a whole, Fannie transferred 42% of its multifamily risk through credit risk sharing vehicles, according to the FHFA's latest progress report. That's far less than the 88% Freddie transferred, but it marks an improvement from the first half of 2018, when Fannie offloaded 28% of its risk and Freddie transferred 88%.

"Freddie's structured program achieves a higher level of capital transfer into the marketplace," said Fannie Mae President Dave Benson in an interview.

But that's because Fannie has a very different core multifamily strategy in which it shares risk directly with lenders instead of investors. That fulfills other regulatory directives such as the alignment of interests between lenders and the secondary market, even though it results in a lower level of risk transfer from a capital perspective. Because of that, Fannie views the concern as more a call for diversification in multifamily risk management, rather than a need to exactly match Freddie's performance.

"It's not really a matter of bridging the gap," said Benson. "There's not really a specific goal in mind, but we do have the object of sharing more multifamily risk in the sector with the marketplace."

Fannie has been doing that through insurance transactions in addition to its core lender risk sharing, but it is limiting the amount of risk it offloads through the insurance deals in order to maintain control of the workout process, and the treatment of borrowers during it.

So while Fannie will continue to diversify its multifamily CRT activities, it plans to continue to use lender risk sharing as its core strategy.

"We've been very, very successful financially and economically based on the model that we've had, so we're very comfortable with what we've been doing there," said Benson.

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GSEs Credit risk transfers Multifamily Risk management Fannie Mae Freddie Mac FHFA