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The rules aim to produce stronger balance sheets at the mortgage giants to free them from their government conservatorships. Their regulator, the Federal Housing Finance Agency, has finalized rules in November that will require Fannie and Freddie to hold hundreds of billions of dollars in capital to protect against losses. economy shut down in March, Congress rushed to pass the $2 trillion CARES Act, which included a provision that allowed forbearance on loans backed by Fannie and Freddie for as long as one year if the pandemic impacted borrowers. The COVID-19 pandemic has challenged these programs. At present, they backstop roughly $5 trillion of home loans. The companies have been issuing mortgage risk-sharing securities since 2013 through their STACR and CAS programs. Now CRT securities pay investors only if borrowers keep paying their mortgages, which protects Fannie and Freddie. Before the birth of the CRT market in 2013, Fannie and Freddie mostly bore the brunt of losses when borrowers defaulted. Instead, they buy them from lenders, wrap them into securities, and guarantee principal and interest repayment to investors. control during the 2008 financial crisis.įannie and Freddie do not originate mortgages. The Credit Risk Transfer (CRT) market resulted from an effort to change Fannie and Freddie’s business models after they failed and were taken under U.S. Manage Products and Account InformationĪ $50 billion bond market exists to transfer credit risk from Fannie Mae and Freddie Mac to private investors, such as insurance companies, asset managers, hedge funds and mortgage reinsurers.