Freddie Mac to increase credit-risk transfer securitizations in 2022

Freddie Mac is ramping up its credit risk transfer activity this year, announcing plans to increase issuance by $7 billion while also offering two new slices to the investment grade tranche due to increased interest in the product.

In 2022, the government-sponsored enterprise plans $25 billion of total issuances, primarily through the Structured Agency Credit Risk and Agency Credit Insurance Structure programs.

The upsizing was expected by the markets, given previous announcements from the Federal Housing Finance Agency that signaled a change in direction from the Trump Administration’s posture toward the programs.

In 2021, Freddie Mac completed $18 billion in CRT deals, (10 STACR and 11 ACIS). A November 2020 change to the regulatory capital framework by then-FHFA Director Mark Calabria played a role in reducing the use of CRT by Freddie Mac and kept Fannie Mae from reentering this market entirely following a March 2020 pandemic-related suspension.

Proposed revisions to the framework by current Acting Director Sandra Thompson — subsequently nominated by President Biden to the position on a full-time basis — reopened this channel last fall.

"Freddie Mac is responding to the capital requirements established by the Enterprise Regulatory Capital Framework with plans to optimize our CRT offerings in 2022," Mike Reynolds, vice president of single-family CRT, said in a press release. "We expect a record year for STACR and ACIS issuance."

As part of its 2022 STACR on-the-run offerings, Freddie Mac is adding two slices to the M-1 tranche.

"We anticipate a market for M-1A and M-1B, as well as the M-2 tranche among sophisticated buyers seeking investment-grade opportunities in agency risk," said Reynolds. "That may be of special interest to investors who expect to take advantage of any STACR buybacks in 2022 and who are looking for a way to redeploy their capital."

In particular, the M-1A tranche could bring new capital in the CRT program, he continued. Analysts at BTIG agreed that the potential market for the products is substantial.

"We believe the GSEs will have considerable runway to increase and expand CRT offerings, which could include transferring chunkier slices of risk, shedding more of the subordinate risk through the structure, and/or reviving lender risk-share transactions," a Jan. 3 report from BTIG Director of Policy Research Isaac Boltansky noted.

The new issuances are anticipated to be offset by $15 billion in exercised note paydowns, repurchases and call options.

Last year, Freddie Mac made its first-ever tender offer for STACR notes. The company was able to retire $1.6 billion in original principal balance of notes that had substantially deleveraged due to decreases in credit risk of related reference pools and increases in credit enhancement to STACR securities. These notes no longer provided Freddie Mac with an economically sensible means of transferring credit risk.

Thompson's revisions brought Fannie Mae back to CRT issuance in October.

Fannie Mae plans $15 billion in Connecticut Avenue Securities REMIC issuance this year, depending on market conditions, Devang Doshi, senior vice president, single-family capital markets, said in a December press release. Its most recent deal, in early December, was for $1.2 billion of Credit Insurance Risk Transfer program notes.