Freddie Mac is stepping up its credit risk transfer activity this year, announcing plans to increase issuance by $7 billion while offering two new tranches to the investment grade tranche due to increased interest in the product.
In 2022, the government-sponsored firm expects $25 billion in total issuance, primarily through the Structured Agency Credit Risk and Agency Credit Insurance Structure programs.
The ramp-up was expected by the markets, given previous announcements from the Federal Housing Finance Agency which signaled a shift in direction from the Trump administration’s posture toward the programs.
In 2021, Freddie Mac closed $18 billion worth of CRT transactions (10 STACR and 11 ACIS). A November 2020 change to the regulatory capital framework by then-FHFA Director Mark Calabria played a role in reduce CRT usage by Freddie Mac and prevented Fannie Mae from fully re-entering that market after a March 2020 pandemic-related suspension.
Proposed revisions to framework by current interim director Sandra Thompson — afterward appointed by President Biden to full-time position — reopened this channel last fall.
“Freddie Mac is meeting the capital requirements established by the Enterprise Regulatory Capital Framework with plans to optimize our CRT offerings in 2022,” Mike Reynolds, vice president of CRT Single Family, said in a press release. “We expect a banner year for STACR and ACIS issuance.”
As part of its STACR 2022 running offerings, Freddie Mac is adding two slices to the M-1 slice.
“We foresee a market for M-1A and M-1B, as well as the M-2 tranche among sophisticated buyers looking for agency risk investment opportunities,” Reynolds said. “This may be of particular interest to investors who expect to profit from any 2022 STACR takeover and are looking for a way to redeploy their capital.”
In particular, the M-1A tranche could bring new capital to the CRT program, he continued. BTIG analysts agreed that the potential market for the products is substantial.
“We believe that GSEs will have considerable avenue to increase and expand CRT offerings, which could include transferring larger risk tranches, removing more subordinate risk through structure and/or raising risk-sharing transactions with lenders,” Jan. 3 said. report by BTIG director of policy research, Isaac Boltansky, noted.
The new issues are expected to be offset by $15 billion of exercised note redemptions, repurchases and call options.
Last year, Freddie Mac made its first-ever takeover bid for STACR tickets. The company was able to withdraw $1.6 billion from the original principal balance of notes that had been significantly deleveraged due to reduced credit risk from related reference pools and increased credit enhancement from STACR titles. These notes no longer provided Freddie Mac with an economically reasonable means of transferring credit risk.
Thompson’s revisions brought Fannie Mae back to CRT broadcast in October.
Fannie Mae expects $15 billion in REMIC issuance in Connecticut Avenue Securities this year, depending on market conditions, Devang Doshi, senior vice president, single-family capital markets, said in a December press release. His most recent deal, in early December, was for $1.2 billion credit insurance risk transfer program notes.