Nov. 2: 2020 industry forecast; Freddie & Fannie in transition; risk transfers continue; sales video

Residential lenders are having a good year. (If you’re not, your New Year’s resolution should be finding something else to do in 2020.) The MBA expects total mortgage origination volume to reach about $2.06tn by then end of the year, and then to decline 8.4% to 1.89tn in 2020. According to the MBA’s Mortgage Finance Forecast, refi originations are expected to drop by 24.5% to $599bn in 2020, and the refinance share of mortgage applications is expected to fall from 38% this year to 32% in 2020. Rates are treading water, and don’t seem bound to plunge in the near term. Certainly this breather in the bond market, with rates treading water, indicates investors are less concerned about immediate risk to the global economy. The move is accompanied by a rally in the S&P 500 and a decline in negative-yielding sovereign debt. Investors were panicking about the trade war, global growth and Brexit in the summer, and now they realized the situations aren’t that bad.

The big news this week was Agency-related: Ginnie, Freddie, and Fannie. If you’d like a quick snapshot of what is going on with F&F, STRATMOR has one. It would seem that most are in agreement that the goal isn’t “recap and release, and both Freddie and Fannie need to rebuild capital through retaining earnings, as they did this week. Before the GSEs are released from conservatorship meaningful reforms should be in place that meet borrower’s needs without roiling the housing market.

Bob Broeksmit, President and CEO of the Mortgage Bankers Association, acknowledged that, “Leveling the playing field for private capital could mean a smaller GSE market share, which means it needs to be done with great care. It needs to ensure access to affordable credit–to preserve the mission of the GSEs to serve low-, moderate- and middle-income families–and to make sure there is liquidity nationwide through all market cycles.”

On October 28, the FHFA released its 2020 scorecard for the GSEs, its strategic plan, and Director Calabria’s prepared remarks for the MBA conference. The scorecard this go-around is “motivated by a duty to end the conservatorships responsibly and to ensure the Enterprises operate appropriately while remaining in conservatorship until the milestones necessary for exit are achieved.” The scorecard is broken into three broad goals: (1) foster a competitive, liquid, efficient, and resilient national housing finance market; (2) ensure safety and soundness; and (3) prepare for a transition out of conservatorship. These documents reinforce our belief that the FHFA is conceptually committed to ending the GSE conservatorships, which underscores our view that this remains a story about execution and timing.

Compass Point Research and Trading summed things up. “The FHFA’s strategic plan states that ‘the growth of non-bank servicers and evolving mortgage servicing business models necessitate continued scrutiny and advance preparations.’ As part of its scorecard, the FHFA called on the GSEs to ‘[i]mplement Servicer Eligibility Requirements 2.0’ and ‘[a]ssess readiness of servicers and servicing policies and processes for an economically-stressed environment.’ Although mortgage servicing has improved markedly since the crisis, policymakers remain concerned that the failure of a servicer could catalyze a disorderly transfer that harms consumers and ripples through the market. The FHFA’s goals come in addition to Ginnie Mae’s ongoing effort to implement an issuer stress test (see here).

And many experts are talking about how the net worth sweep will be replaced with a more practical fee structure as part of the 4th PSPA amendment.

Risk transfer: Risk On Garth!

Since the financial crisis, boutique investors Fannie Mae and Freddie Mac have wound down their retained portfolios, reduced risk, and returned hundreds of billions to the government. Freddie & Fannie continue to move forward with initiatives that aren’t directly reliant on political decisions, like billions of dollars of transferring credit risk. Dan Fichtler, Director of Housing Finance Policy, for the Mortgage Bankers Association observed, “We continue to be encouraged by the progress the GSEs are making with respect to their CRT programs. For the STACR and CAS offerings in particular, it’s clear that they’ve turned the corner to become better-understood, more-liquid securities, which is increasing investor demand and contributing to tighter spreads. Another very positive development is the decision by both GSEs to issue their STACR and CAS securities as REMICs, which should allow greater investment by REITs.”

Loan originators should know that transferring credit risk away from taxpayers to willing buyers help rates for their borrowers

Freddie Mac announced that its Single-Family Credit Risk Transfer (CRT) programs have surpassed the $50 billion mark in transferring credit risk to private investors and (re)insurers, demonstrating Freddie Mac’s commitment to risk reduction on behalf of the firm and U.S. taxpayer. CRT reduces Freddie Mac’s capital requirements and credit risk exposure, enhancing the firm’s resilience against possible future economic downturns. The programs also help its product offerings appeal to a wide variety of market participants, as the company has now transferred a portion of the credit risk on more than $1.3 trillion of Single-Family mortgages based on unpaid principle balance at issuance. Freddie Mac transfers the credit risk on more than 90 percent of the UPB on CRT-eligible, newly-acquired Single-Family mortgages, as well as transfer credit risk on previously retained exposure, such as seasoned first-loss notes and Home Affordable Refinance Program (HARP) loans. Today, CRT serves as the primary source of private capital investment in residential mortgage credit.

Fannie Mae announced that it has completed a multi-tranche Multifamily Credit Insurance Risk Transfer transaction covering a pool of approximately $10.7 billion of existing multifamily loans in the company’s portfolio. This new transaction, MCIRT 2019-02, is the sixth multifamily CIRT transaction as part of Fannie Mae’s ongoing effort to increase the role of private capital in the multifamily mortgage market and mitigate risk for U.S. taxpayers. The transaction transfers approximately $348 million of risk to reinsurers and insurers. The covered loan pool for the transaction consists of 1,031 loans, secured by 1,044 multifamily properties, acquired by Fannie Mae from November 2018 through February 2019. Fannie Mae will retain risk on the first 75 bps of losses on the reference pool, while the C tranche will transfer risk to reinsurers covering losses between 75 bps and 150 bps, the B tranche will transfer risk to reinsurers covering losses between 150 and 275 bps, and the A tranche will transfer risk to reinsurers covering losses between 275 and 400 bps. Once the pool has experienced 400 basis points of losses, the credit protection will be exhausted and Fannie Mae will be responsible for any further losses. Fannie Mae’s multifamily CIRT program shares risk with diversified reinsurer and insurer counterparties, supplementing the Delegated Underwriting and Servicing program where originating lenders routinely share approximately one-third of the credit risk on multifamily loans. Since 2016, Fannie Mae has transferred a portion of the credit risk on multifamily mortgages with an aggregate unpaid principal balance of more than $61.9 billion through the CIRT program.


Fannie Mae also priced Connecticut Avenue Securities (CAS) Series 2019-R06, a $1.3 billion note offering that represents Fannie Mae’s latest CAS REMIC transaction in its benchmark issuance program designed to share credit risk on its single-family conventional guaranty book of business. The reference pool for CAS Series 2019-R06 consists of approximately 131,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $33 billion. The reference pool includes one group of loans comprised of collateral with loan-to-value ratios of 80.01 percent to 97.00 percent, the majority of which were acquired from January through June 2019. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls. Fannie Mae will retain a portion of the 2M-1, 2M-2, and 2B-1 tranches in order to align its interests with investors throughout the life of the deal, and will retain the full 2B-2H first loss tranche. With the completion of this transaction, Fannie Mae will have brought 36 CAS deals to market, issued $42 billion in notes, and transferred a portion of the credit risk to private investors on more than $1.3 trillion in single-family mortgage loans, measured at the time of the transaction. Since 2013, Fannie Mae has transferred a portion of the credit risk on more than $1.8 trillion in single-family mortgages, measured at the time of the transaction, through all of its credit risk transfer programs. Pricing for the deal is as follows. Class 2M-1 has an offered amount of $233.828 million, a price level of 1-month LIBOR plus 75 bps, and an expected BBB-(sf) / A- rating. Class 2M-2 has an offered amount of $732.660 million, a price level of 1-month LIBOR plus 210 bps, and an expected B(sf) / BB+ rating. Class 2B-1, which will not be rates, has an offered amount of $327.360 million and a price level of 1-month LIBOR plus 375 bps. Fannie expects to return to the market with its final low-LTV CAS deal of the year in late October, subject to market conditions.

Fannie Mae began marketing its fourteenth sale of reperforming loans, mortgages that were previously delinquent but are performing again because payments on the mortgages have become current with or without the use of a loan modification, as part of the company’s ongoing effort to reduce the size of its retained mortgage portfolio. The sale consists of approximately 22,700 loans, having an unpaid principal balance of approximately $3.4 billion, and is available for purchase by qualified bidders. Interested bidders can register for ongoing announcements, training, and other information at Fannie Mae will also post information about specific pools available for purchase on that page. Bids are due on November 5, 2019. Buyers must report on loss mitigation outcomes, though any reporting requirements cease once a loan has been current for twelve consecutive months after the closing of the reperforming loan sale.


Fannie Mae announced the completion of its sixth Credit Insurance Risk Transfer (CIRT 2019-3) transaction of 2019, covering $14.8 billion in unpaid principal balance of 21-year to 30-year original term fixed-rate loans previously acquired by the company as part of Fannie Mae’s ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. To date, Fannie Mae has committed to acquire approximately $10 billion of insurance coverage on $375 billion of single-family loans through the CIRT program, measured at the time of issuance for both post-acquisition (bulk) and front-end transactions. This deal marked the first time a 30-year bulk CIRT transaction was structured with an extended policy term of 12.5 years and a 40-basis point retention layer, compared to a 10-year policy term and a retention layer of between 50 and 60 basis points for similar past deals. These changes in the structure increased the risk transfer on the covered pool of loans. The CIRT program has now committed approximately $10 billion of risk transfer since the program’s first transaction in 2014. With CIRT 2019-3, which became effective August 1, 2019, Fannie Mae will retain risk for the first 40 basis points of loss on a $14.8 billion pool of single-family loans with loan-to-value ratios greater than 60 percent and less than or equal to 80 percent. If the $59 million retention layer is exhausted, reinsurers will cover the next 325 basis points of loss on the pool, up to a maximum coverage of approximately $479 million. A summary of key deal terms, including pricing, for these new and past CIRT transactions can be found at


Fannie Mae began marketing its debut multi-family risk transfer deal, in which it is expected to sell bonds that transfer the risk on multi-family property loans for the first time as it broadens efforts to reduce taxpayer exposure to that part of its business. The $472.719 million offering, Multi-family Connecticut Avenue Securities, Series 2019-01, featuring four classes of floating-rate notes, is similar to the risk-transfer securities Fannie Mae has been selling for its single-family loans since 2013. The deal is designed to absorb some of the potential losses on a $17.081 billion pool of multi-family mortgages, originated between April and December 2018. Fannie Mae would absorb the first 65 bps of losses in the pool, and investors holding the four tranches would then absorb up to 4.43 percent of losses. Fannie Mae will also retain at least 5 percent of the underlying credit risk in a vertical slice of each tranche. The spreads on offer in the deal range from 225 bps to 250 bps over LIBOR for the $80.7 million M-7 tranche at the top of the debt stack, which has a 5.64 year weighted average life, to 1000 bps -1050 bps over LIBOR for the most junior tranche, a C-E class that has a 10.58 year weighted average life. The largest tranche on offer is the $327.1 million M-10 class, which has an 8.77 year weighted average life and has guidance of 425 bps to 450 bps. The transaction marks a new way Fannie Mae has looked to transfer multi-family credit risk. At the end of the second quarter, Fannie Mae had $332.6 billion of multi-family loans on its books, up from $287.6 billion a year prior.


Switching gears… to a message for sales folks

The Mortgage Coach & RE Source brands collaborated this week to produce a great video titled “What Does It Mean To Be The Captain of The Wealth Team”. Dave Savage and Ryan Hills unpack a message for both Realtors and lenders and discuss what it takes to become a “Black Belt” Loan Officer and Realtor. Join the conversation here.

An opinion without 3.14159 is just an onion. (Thanks to Ed R. for that gem.)

Visit for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “Fannie & Freddie: A Snapshot” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.


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Rob Chrisman