Uncertainty regarding the performance of mortgages underlying its CRT in-vestments prompted PMT to boost the discount rate on its loans from just 5% at the end of the fourth quarter to about 11% as of March 31.
The coronavirus laid waste to Fannie’s first-quarter profit but those costs were offset by a $637 million gain in the fair market value of its CRT. But not for long.
The first three months of 2020 saw a record $6.8 billion of credit-risk transfer bonds issued by the government-sponsored enterprises. Rating services have begun reviewing the impact of the coronavirus on both older and new CRT deals. (Includes data chart.)
Social distancing is having a huge impact on the corporate ratings that underlie CLO collateral, and analysts expect most of the damage to fall on speculative-grade tranches. (Includes data chart.)
Some credit-risk transfer deals explicitly exempt forbearance losses due to natural disasters. Freddie Mac clarified that it considers the coronavirus a natural disaster. Fannie Mae has yet to provide guidance.
Fannie's massive CAS deal backed by seasoned HARP loans drove credit-risk note offerings to a record $4.54 billion in the fourth quarter of 2019. (Includes data chart.)