Of all the new asset classes offering exposure to the U.S. housing market, credit risk transfer notes may have developed the biggest following.  

In fact, the expanding investor base for Connecticut Avenue Securities and Structured Agency Credit Risk notes creates a kind of virtuous circle: As trading volume increases, banks are dedicating traders to the asset class.

And this, in turn, helps attract additional investors.

Credit risk transfer notes are the primary way that Fannie Mae (CAS) and Freddie Mac (STACR) get taxpayers off the hook for residential mortgage that they insure. The notes are general obligations, but their performance is linked to the timely payments of a pool of securitized loans.

Over 150 institutional investors have participated in the two programs to date; throw in some smaller reinsurance products offered by the two companies and there are 200 unique investors. “We’ve doubled the number of investors over the last 24 months, and we’ll probably double it again over the next 28 months,” said Kevin Palmer, senior vice president for credit risk transfer at Freddie Mac.

“There’s a lot more capacity to take on credit risk transfer, even outside of the capital markets,” at insurance companies,” he said at panel of IMN’s ABS East conference.

There is now some $30 billion of CAS and STACR outstanding and monthly trading volume has quadrupled to $2.8 billion from $700 million, according to Andy Davidson, president of Andrew Davidson & Co.

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