Fannie Mae will return to selling pieces of its credit exposure to private investors during the last three months of the year, but is still evaluating its strategy for 2022.
The move will restore to full capacity a market that has been running at half speed, but the new issuance isn’t likely to make up for ground that was lost since the agency suspended such transactions in March 2020.
In a brief announcement, Fannie Mae said it will resume CRT transactions in the fourth quarter, through its Connecticut Avenue Securities and Credit Insurance Risk Transfer programs.
"The CRT market has been a consistent source of credit-linked products to the private label mortgage market as a whole," said Vadim Verkhoglyad, vice president and head of quality assurance and co-head of research and publications at dv01. "They play a key role in market liquidity, credit transparency and investor participation in direct credit for mortgage borrowers."
Issuance is likely to begin in October, an FAQ about the resumption said. CAS transactions may be brought to market during four issuance windows: mid-October, late-October, mid-November and mid-December. But the company added that it might choose not to issue in some periods.
Fannie Mae also plans to do single-family CIRT and multifamily CIRT deals in October, but it will not issue any multifamily CAS deals this year.
As for 2022, "the structure of and extent to which we engage in any additional credit risk transfer transactions in the future may be affected by our capital requirements, the degree of regulatory capital relief provided by the transactions, our risk appetite, the strength of future market conditions," the FAQ read. "We are continuing to evaluate our CRT strategy for next year and are not currently communicating an outlook."
Fannie Mae has not made any CRT issuances since March 2020, in part due to COVID-19's disruption of the markets, but also because of a change to the government-sponsored enterprises' capital framework by former Federal Housing Finance Agency Director Mark Calabria, which increased the risk weighting for these securities. Acting Director Sandra Thompson is
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"For nearly two years, the primary CRT market has been running at less than half capacity, as Fannie Mae has been broadly absent," Verkhoglyad said. "Their return to programmatic issuance will both provide additional supply and help stem the paydowns of Fannie's existing CRT program."
However, that new issuance will barely make up for the monthly reduction in Fannie's existing CRT portfolio, he said.
But the health of the PLS market is a positive indicator for the CRT market, since it has largely recovered from the upheaval of the early days of the pandemic.
"Impairments and delinquencies have declined substantially from their post-COVID-19 peaks as evidenced in our reports and continue to decline every month," Verkhoglyad said. "Furthermore, newly originated loans have largely avoided the COVID-related impairments, which overwhelmingly arose in the middle of 2020.”
