New Kids on the Block: Credit Risk Transfer Deals

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Posts: 8309
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

New Kids on the Block: Credit Risk Transfer Deals

Post by Doc » Mon Sep 11, 2017 11:19 am

Executive Summary
Created in 2013, credit risk transfer deals are issued by Fannie Mae and Freddie Mac.
The structures are designed to move mortgage credit risk from the agencies’ balance sheets to investors.
The goal is to reduce the likelihood that the government (and taxpayers) will need to backstop the agencies in the event of another housing crisis.
The deal tranches offered to investors boast relatively juicy floating coupons and have been strong performers since their creation.
However, the securities are untested, and may not be as safe as they first appear.
Another concern is that some investors may infer a false sense of security with CRTs. Because the interest payments are coming from Fannie and Freddie, and not directly from the reference pool of mortgages, some firms have technically classified them as “agency” securities, despite their inherent credit risk. ... ?id=824525

There is a whole lot more in the article and much of it is beyond my pay grade. I don't know what impact this could have on "Government" mutual funds like Vanguard Short-Term Government Bond Index Fund Admiral Shares (VSBSX). (At least prior to the coming change to an all Treasury index fund.)

Any thoughts?
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

Post Reply