TH recently on CRT'S: "I hope FHFA is paying attention to what is going on here. When home prices are rising sharply and most of Fannie’s (and Freddie’s) new guarantees are refis, investors love securitized CRTs because they transfer huge amounts of income and very little likely credit losses. Now that we’ve switched to more of a purchase market–with higher average original LTVs and somewhat lower credit scores–and the outlook for future home price appreciation is much less certain, investors want fewer CRTs, and on more favorable terms.
It’s easy to understand why Wall Street and the investment community are such fans of CRTs–they price them to make (lots of) money at Fannie and Freddie’s expense, and can stop buying new issues whenever the chance of actually having a significant amount of credit losses transferred to them gets too high. It’s much less understandable why FHFA–which is supposed to be a “safety and soundness” regulator–pushes them so heavily. I tried to explain the problem with the companies’ CRT programs in my comment on FHFA’s September 16 proposed CRT-related amendments to its ERCF capital rule, but as expected it paid no attention to any of the facts and analysis in this comment and adopted its amendments as proposed. And it’s apparently going to keep pretending that CRTs really will be a net benefit to the issuing entities until it becomes painfully obvious to anyone with a heartbeat that, as currently structured, they have not, do not, and will not. In the meantime, Fannie and Freddie will have lost billions as a consequence of this fantasy of a willfully blind and stubborn regulator."
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