Credit risk transfers

JPMorgan Chase & Co. plans to sell credit risk on a $531 million portfolio of adjustable-rate mortgages, a new kind of offering by the bank and the latest example of the industry's efforts to de-risk balance sheets.

The credit-insurance risk transfer deal from Fannie Mae covers risk from $9 billion in single-family loans and includes a new LTV identifier for the first time.

The conflict of interest rule for securitizations doesn't appear to discourage routine transactions, but could add to nonbank compliance costs.

The loan pool consists of approximately 34,000 single-family mortgages with unpaid principal balances near $11.5 billion.

The real estate investment trust arm of two affiliate mortgage-related companies could reduce other debt and finance purchases of loans, servicing or securities.

The government-sponsored enterprise has shared $25.2 billion of insurance coverage through its Credit Insurance Risk Transfer program.

But on a cumulative basis since 2013, the unpaid principal balance of reference pools is higher at Freddie Mac, according to the Federal Housing Finance Agency.

In total, around 98,000 loans with a principal balance of $31.8 billion are in the cover pools for the two new insurance-based transactions.

The government-sponsored enterprises will likely have their mainstay bonds exempted from the potential securitization-related rule, but their credit-risk transfers could be subject to it, some experts say.

The numbers show that volume has been strong despite volatility in the market that at one point delayed a CRT deal from competitor Fannie Mae.

The two latest transactions follow in the wake of the government-sponsored enterprise’s first deal of the year and the release of a finalized capital rule aimed at facilitating broader risk-sharing.

The transaction highlights the importance of giving the government-sponsored enterprises like Fannie access to a range of risk-sharing alternatives at a time when market volatility reportedly delayed another type of deal.

A group of 20 insurers and reinsurers provided coverage for the government-sponsored enterprise’s credit insurance risk transfer deal, which was the biggest in its category to date.

Issuance of capital market instruments aimed at protecting one government-sponsored enterprise from distressed mortgage credit events staged a relatively quick rebound in 2020, a new Federal Housing Finance Agency report shows.

Oaktree Re VI 2021-1 will market $531 million in CRT notes that will provide NMI with partial reinsurance on a $45B pool of GSE-eligible loans.

The $16.9 billion in issuance marked the biggest annual number seen since the government-sponsored enterprise reconstituted its risk sharing program in 2013.

If you are underbanked you probably have limited access to mainstream financial services normally offered by retail banks. Many fintech startups offer alternative ways to measure credit risk, and assert that their products can help extend financial services to consumers who have not been well-served by traditional banks.

The reference pools of mortgages supporting the credit-risk transfer notes sold by Fannie Mae and Freddie Mac were 'generally lower' in delinquencies per newly issued monthly reports, says DBRS Morningstar.

Fannie hasn't completed any credit risk transfers to private investors since the second quarter. Some experts worry the decision — likely spurred by the company’s concerns about a recent capital regulation — could put the mortgage giant on unsteady footing.

FSOC’s statement on the FHFA’s proposed capital rule raises questions for market participants trying to anticipate a post-conservatorship secondary mortgage market, should the incoming administration go through with the GSEs’ exit from governmental control.