Credit Risk Sharing

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Credit Risk Sharing

Fannie Mae’s Credit Risk Sharing initiatives aim to reduce our mortgage default (credit) risk by offering new opportunities for financial institutions to invest in the credit performance of our single-family book of business.

Credit Risk Sharing:

  • Provides an additional avenue for sharing our mortgage credit risk.
  • Adds a layer of defense against loss to existing credit risk policies and processes.
  • Seeks to reduce the government’s participation in the mortgage market.

Benefits:

  • Enhances our ability to manage credit risk.
  • Allows us to share credit risk on our guaranty book of business with private market participants.
  • Reduces taxpayers’ credit risk exposure on Fannie Mae’s guaranty business.
  • Fulfills our public policy goal to re-start private investment in mortgage credit risk and aligns with objectives set forth in FHFA’s 2013 Conservatorship Scorecard.

Our goal is to develop multiple forms of risk-sharing with private market participants. Below are examples of transactions we are using to share credit risk.

  • Connecticut Avenue Securities are designed to share credit risk on a portion of our strongest performing single-family book—newly-originated, qualifying mortgage loans that are underwritten using strict credit standards and enhanced risk controls (implemented post housing crisis). Fannie Mae’s first credit-linked debt offering was priced on October 15, 2013. The Connecticut Avenue Securities program aims to offer ongoing investment opportunities that are scalable, and flexible enough to respond to market feedback, and are designed to have minimal, if any, impact on the To Be Announced (TBA) market.
  • An agreement with National Mortgage Insurance Corp. (National MI) to insure a pool of loans with an unpaid principal balance of over $5 billion was executed on July 15, 2013. This transaction entailed using a pool mortgage insurance policy to transfer a portion of the risk on a pool of high quality loans that Fannie Mae acquired in the fourth quarter of 2012. Read more information on the NMI transaction.

Find Out More

Fannie Mae’s Approach to Single-Family Credit Risk Management (PDF) highlights how we manage the credit risk of the largest single-family mortgage book of business in the industry.

Fannie Mae Quality Control Framework (PDF) highlights the state-of-the-art tools and analytics that Fannie Mae has developed to help identify defective loans earlier in the loan manufacturing process.

Commitment to the Future

Through Credit Risk Sharing and our other Strategic Initiatives, we are demonstrating our ongoing commitment to move the industry forward and build a better housing finance system.

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