Fitch: Loss Data Offers Clues for Expected GSE Risk-Sharing Deals

NEW YORK--()--Link to Fitch Ratings' Report: Insights into Freddie Mac Loan Loss Data (Loan Loss Drivers Mirror Non-Agency)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=861229

Loss severities on liquidated residential mortgages are comparable between Freddie Mac and non-agency loans when controlling for attributes, according to Fitch Ratings in a new report.

Freddie Mac enhanced its single family residential loan-level historical dataset in November 2014 by adding loan-level loss data. In doing so, Freddie Mac increased transparency to the market in anticipation of an actual loss credit offering in 2015. To date, all risk-sharing transactions have passed losses on defaulted loans to investors using a pre-determined loan loss severity schedule.

Fitch's report contrasts Freddie Mac's historical loss data with non-agency RMBS loss data. While differences in loss severity exist between the two in aggregate, the differences can be attributed to specific loan attributes like property values and mortgage insurance, rather than differences in operational risk or procedure. 'Loss severities are very similar when comparing loans with similar attributes,' said Director Sean Nelson. 'This suggests that the underlying drivers of loss severity are the same across both agency and non-agency loans.'

Fitch also compared historical Freddie Mac loss severities to date to the fixed loss severity schedules in recent STACR risk-sharing transactions. Fitch found that observed severities to date are generally comparable to the fixed levels for 60%-80% LTV loans and lower than the fixed levels for 81%-95% LTV loans. However, depending on the attributes of the loans, loss severities in an actual loss transaction may differ from the aggregate historical data. 'Credit enhancement requirements for an actual loss transactions will be driven by the particular credit, leverage and mortgage insurance profile of the pool, and may be higher or lower than the CE in existing fixed-severity transactions,' said Nelson.

The report also analyzes the benefits and risks associated with mortgage insurance (MI), which is generally required for loans with loan-to-value ratios greater than 80% in order to be GSE-eligible. While MI recoveries on liquidated loans can significantly lower loss severities, Fitch found that the percentage of MI claims receiving payouts has declined steadily over the last several years.

'Insights into Freddie Mac Loan Loss Data' is available at 'www.fitchratings.com' or by clicking on the above link.

Additional information is available at 'www.fitchratings.com'.

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Contacts

Fitch Ratings
Sean Nelson
Director
+1 212-908-0207
Fitch Ratings, 33 Whitehall Street, New York, NY 10004
or
Grant Bailey
Managing Director
+1 212-908-0544
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Sean Nelson
Director
+1 212-908-0207
Fitch Ratings, 33 Whitehall Street, New York, NY 10004
or
Grant Bailey
Managing Director
+1 212-908-0544
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com