Credit risk transfer primer

  • What does CRT mean in banking?

    Through our credit risk transfer (CRT) transactions, we facilitate the flow of private capital between Fannie Mae's lender customers and a diverse group of investors..

  • What is a credit risk transfer?

    Pioneered by Freddie Mac in 2013, credit risk transfer\xae (CRT) programs structure mortgage credit risk into securities and (re)insurance offerings, transferring credit risk exposure from U.S taxpayers to private capital.Jul 19, 2023.

  • What is a CRT in mortgage?

    Freddie Mac's Single-Family Credit Risk Transfer (CRT) programs are designed to distribute a portion of Freddie Mac's mortgage credit risk to third-party participants.
    The industry-leading and award-winning programs attract capital markets institutional investors and (re)insurance companies worldwide..

  • Credit Risk Transfer (CRT) securities are general obligations of the US Federal National Mortgage Association, commonly known as Fannie Mae, and the US Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac.
  • Example: Suppose Bank A buys a bond issued by ABC Company.
    In order to hedge the default of ABC Company, Bank A could buy a credit default swap (CDS) from insurance company X.
    The bank keeps paying the insurance company fixed periodic payments (premiums) in exchange for default protection.
  • Freddie Mac's Single-Family Credit Risk Transfer (CRT) programs are designed to distribute a portion of Freddie Mac's mortgage credit risk to third-party participants.
    The industry-leading and award-winning programs attract capital markets institutional investors and (re)insurance companies worldwide.
Nov 10, 2020CRTs are issued by the GSEs as unsecured debt obligations. Unsecured refers to the fact that these debt obligations are not backed by any form 

How much credit risk is passed to private industry?

Passing over $100 billion in credit risk to private industry represents a meaningful reduction in the exposure of the federal government to mortgage credit risk and has created a new financial market that is pricing and trading credit risk.

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What are credit risk transfer transactions?

Credit Risk Transfer (CRT) transactions are structures that involve the transfer of credit risk of all or a tranche of a portfolio of financial assets.
The protection buyer will typically own the portfolio of assets, which may be corporate loans, mortgages, or other assets.

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What are the options for pool-level credit risk transfer?

This paper explores a range of options for pool-level or portfolio credit risk transfer3:

  • Cash Securitization
  • Corporate Debt (Credit Linked Notes)
  • Synthetic Trust Structures
  • and Bilateral Credit Protection (Eligible Guarantors).
    • ,

    Why did Freddie Mac start a credit risk transfer?

    In mid-2013, however, Freddie Mac pioneered the first modern credit risk transfer (CRT) transaction by a GSE; this transferred a portion of the credit risk to private capital sources, thereby reducing the exposure of the company – and the taxpayers supporting it during conservatorship – to that risk.
    Fannie Mae followed suit later that year.


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