How GSE Privatization Could Impact Credit Risk Transfer Ratings

As the new presidential administration takes office, there is growing speculation as to whether there will be housing finance reform, including the potential privatization of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Exiting conservatorship could have ramifications for the creditworthiness of the GSEs, and it could impact U.S. mortgage and housing markets broadly. S&P Global Ratings is monitoring related developments and potential credit implications. While this commentary does not contemplate the likelihood of privatization, we discuss the possible impact on mortgage-backed securities (MBS) and associated single-family credit risk transfer (CRT) transactions of the GSEs and how our CRT ratings could be affected. The impact of GSE privatization would depend on whether the U.S. would provide support to the GSEs

...- As privatization of the GSEs has resurfaced as a potential policy objective, we are monitoring the effect it could have on CRT ratings. - While CRT note credit quality is largely dependent on the behavior of the reference mortgage pool, counterparty risk of the GSEs could become a constraining factor. - If a path to privatization takes form, we will need to factor in the extent to which transaction structures mitigate the counterparty risk of the GSEs, or any other forms of external support provided, such as a guarantor of GSE obligations. As the new presidential administration takes office, there is growing speculation as to whether there will be housing finance reform, including the potential privatization of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Exiting conservatorship could have ramifications for the creditworthiness of the GSEs, and it could impact U.S. mortgage and housing markets broadly. S&P Global Ratings is monitoring related developments and potential...

Commentary