PT  - JOURNAL ARTICLE
AU  - Kevin Palmer
TI  - What Credit Risk Transfer Tells Us About G-Fees
AID  - 10.3905/jsf.2017.23.3.065
DP  - 2017 Oct 31
TA  - The Journal of Structured Finance
PG  - 65--69
VI  - 23
IP  - 3
4099  - https://pm-research.com/content/23/3/65.short
4100  - https://pm-research.com/content/23/3/65.full
AB  - The appropriate level of guarantee fees (G-fees) is an important issue to the housing finance policy community. With the significant amount of risk now being transferred to the private markets through single-family credit risk transfer (CRT), we have another tool with which to estimate the cost of the credit risk and calculate a market-implied G-fee. The market-implied G-fee provides information about what the private capital markets would charge for operating a credit guarantee business like Freddie Mac’s and offers a key benchmark for policy discussions.CRT tells us that Freddie Mac’s G-fees are in line with what the private market would charge for the mortgage credit risk we take, although to a lesser extent for higher-risk loans. Moreover, CRT also indicates that Freddie Mac’s G-fees are more stable than private sector pricing, thus validating conventional wisdom on the issue.TOPICS: MBS and residential mortgage loans, legal/regulatory/public policy, real estate