Freddie Mac’s single-family CRT soared to record-high despite pandemic

The issuance of credit risk transfers on traditional home loans rose to new heights in 2020 despite complications that emerged amid the pandemic, Freddie Mac reported Monday.

The $16.9 billion in issuance that transferred risk on more than $475.8 billion in mortgages was the highest annual amount seen since the government-sponsored enterprise reconstituted its risk sharing in 2013. In comparison, there was $12.2 billion in issuance that transferred risk on $252.9 billion in loans in 2019.

Record issuance in 2020 suggests that CRTs, which were tested by market dislocation and increased borrower payment challenges, have proved resilient and could rebound under current U.S. leadership.

“Despite a challenging environment, Freddie Mac’s single-family CRT program closed out its biggest year ever in 2020,” said Mike Reynolds, a vice president at the government-sponsored enterprise, in a press release. “Our effectiveness in managing risk and tailoring transactions to investor needs and market conditions, together with our ongoing commitment to leadership in this asset class, helped drive demand for our CRT products.”

Helping to boost Freddie Mac’s volumes in 2020 was the fact that its competitor, Fannie Mae, put the structured portion of its single-family CRT programs on hold due to the pandemic-related pressures that emerged last year. Fannie's CRT program remains on hold for now but it will consider re-entering the market in the future.

Among the reasons for Fannie’s pullback from the market last year was the development of a capital plan for the GSEs, which assigns a higher risk weighting to structured CRTs under Federal Housing Finance Agency Director Mark Calabria, a Trump administration appointee. The final version of the plan did slightly lower the weighting.

The Biden administration is expected to take a more favorable view of structured CRTs, which the GSEs were originally directed to engage by previous FHFA Acting Director Ed DeMarco during the Obama administration. But Biden’s power to remove Calabria may be limited until his term ends in 2024, pending the outcome of litigation related to the removal of independent directors playing out in the Supreme Court.

How CRT performance fares for investors going forward depends in part on the amount of borrowers who get back on track after putting their payments on hold to address coronavirus-related hardships. The Biden administration recently extended this forbearance through June.

At year-end, payments on 2.7% of Freddie’s single-family loans were on hold. That forbearance broke down as follows: 1.29% had been in forbearance for more than six months; 0.63%, three to six months; 0.37%, current; 0.23% one month; and 0.18%, two months.