Pic© Keith S Brown
High-LTV GSE credit risk transfer (CRT) deals differ from low-LTV ones in more ways than just LTV ratio. While controlling for these differences shows worse delinquencies for high-LTV deals, loss severities are actually better, and therefore high-LTV CRTs could provide compelling opportunities for spread pickup.
When Fannie Mae and Freddie Mac launched their CRT programmes in 2013, reference pools consisted only of mortgages with LTVs of 60%-80%, but both GSEs introduced high-LTV programmes shortly thereafter.
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