Lenders are compensating for climate change by requiring higher downpayments for properties in areas of higher flood risk and increasing subordination levels in securities with a higher concentration of mortgages in flood zones.
Fitch is allowing ratings for certain CRT issuance from banks to be higher than the rating on the issuer. The deals need various features to receive higher ratings.
Banks are looking for capital relief, regulators are making issuance of credit-risk transfers easier for banks to complete and investor demand for the deals is strong.
With Freddie finally increasing its STACR issuance in the first quarter, the GSEs’ slump in CRT activity could be abating. Older deals continue to be retired in a steady stream of tender offers by the enterprises. (Includes data table.)
CRT deals involving auto loans typically have a pro rata structure, which can create more risks for investors than the sequential pay structure in ABS transactions. Structures are also evolving, including a deal issued by a nonbank in partnership with a bank.
Regulators are pushing higher capital requirements on banks and looking favorably at credit-risk transfer transactions, helping to increase CRT issuance. Investor demand for bank CRT is also outstripping supply.
Huntington National Bank is in the market with its first auto ABS since 2016. The bank completed a credit-risk transfer transaction in late December involving a $3.0 billion pool of auto loans.
Fed stays course on MBS sales; SFA close to revising data tape for prime non-agency MBS; MBS on watch for rating upgrades by Fitch; subprime auto ABS impairments rise; commercial MBS delinquencies decline; Fannie sees tighter spreads for latest CRT; Morningstar not ready to give positive commercial MBS credit for “mass timber” construction.
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