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Credit risk transfer and de facto GSE reform

David Finkelstein, Andreas Strzodka and James Vickery ()
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David Finkelstein: Annaly Capital Management, Inc.
Andreas Strzodka: Annaly Capital Management, Inc.

Economic Policy Review, 2018, issue 24-3, 88-116

Abstract: The Fannie Mae and Freddie Mac credit risk transfer (CRT) programs, now in their fifth year, shift a portion of credit risk on more than $1.8 trillion of mortgages to private-sector investors. This study summarizes and evaluates the CRT programs, finding that they have been successful in reducing the exposure of the government-sponsored enterprises and the federal government to mortgage credit risk without disrupting the liquidity or stability of mortgage secondary markets. The programs have also created a new financial market for pricing and trading mortgage credit risk, which has grown in size and liquidity over time. In doing so, the CRT programs provide a valuable step forward in the reform of the U.S. housing finance system.

Keywords: mortgage; credit risk transfer; securitization; Fannie Mae; Freddie Mac; GSE (search for similar items in EconPapers)
JEL-codes: G10 G18 G21 G23 G28 (search for similar items in EconPapers)
Date: 2018
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