The CRT market is showing signs of post-pandemic recovery. But Freddie Mac’s former CEO believes the re-proposed capital rule for the GSEs could make the whole CRT program pointless.

If the new rule had been in effect at 3Q19, CRT would have reduced the GSEs’ capital requirement by $22.1 billion. On the other hand, CRT provisions under the 2018 version would have provided $41.3 billion.

Industry experts have identified the TALF program as a vehicle the government could use to help fund nonbank mortgage servicers.

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.

To make sure Fannie and Freddie get the most value out of their CRT deals, the FHFA has directed them to wind down front-end transactions.

Freddie has priced in excess of $8 billion in multifamily CRT so far in 2020 while Fannie has added more than $10 billion of MCIRT.