Inflation, capital rules, lower origination and regulatory change all loom large
As US inflation hits a 30-year high, the GSE CRT market has a headwind to contend with it hasn’t seen for a long time.
October CPI, reported yesterday, increased by 6.2% from 12 months ago, which represented the fastest annual pace of growth seen since 1990 and was the fifth straight month above 5%.
It’s all change in the CAS and STACR markets on a number of other fronts as well.
The new amendments to the Enterprise Regulatory Capital Framework (ERCF) introduced in September have not only made CRT deals more economically viable they also gave notice of a new regime at the FHFA and one that is convinced of the utility of CRT.
The effect of the changing of the guard was made evident almost immediately as Fannie Mae came back to the market for the first time since Q1 2020.
Issuance this year has been driven very largely by record origination. While most forecasts predict volumes to continue to be healthy, the record pace seen in 2020 is unlikely to be maintained. Indeed, a drop of 35% may be on the cards.
This could mean reduced CRT next year, so, all things being equal, spreads should contract further. But Fannie Mae might want to make up for lost time, bolstering supply and softening prices.
Finally, there is more change on the regulatory front than has been the case for a number of years. The FHFA is committed to extend credit to those communities often left out of the housing market, and, on the face of it, this means credit quality - at least as it is traditionally assessed - of collateral pools will weaken. Does this mean a greater role for the CRT market?
SCI will hold a webinar at 10am EDT November 16 2021 to discuss these themes and other pertinent questions connected to the GSE CRT market.
The panel consists of:
Simon Boughey, US Editor, SCI
Seamus Fearon, EVP, Credit Risk Transfer & Services, Arch Capital Group
Jeffrey N. Krohn, Mortgage Credit Segment Leader, Guy Carpenter
Tim Armstrong, Managing Director, Guy Carpenter