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The Journal of Structured Finance

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The First GSE Risk-Sharing Deal: An Effective Risk Transfer Mechanism?

Laurie S. Goodman, Lidan Yang and Brian Landy
The Journal of Structured Finance Fall 2013, 19 (3) 33-42; DOI: https://doi.org/10.3905/jsf.2013.19.3.033
Laurie S. Goodman
is the center director for the Housing Finance Policy Center at the Urban Institute in Washington, DC.
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  • For correspondence: lgoodman@urban.org
Lidan Yang
is a senior vice president at Amherst Securities Group LP in New York, NY.
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  • For correspondence: lyang@amherst.com
Brian Landy
is a senior vice president at Amherst Securities Group LP in New York, NY.
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  • For correspondence: blandy@amherst.com
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Abstract

The first government-sponsored enterprise (GSE) risk-sharing transaction, Freddie Mac’s STACR (Structured Agency Credit Risk) 2013-DN, in which private investors bear some of the credit risk, priced on July 23, 2013. These transactions were a cornerstone of the FHFA’s strategic plan. The thought was these transactions could be used not only to transfer risk but also to validate guarantee fee pricing. In this article, the authors first describe the transaction structure and collateral. They argue that with good quality collateral the default and losses will be low, at 66 basis points of default and about 10 basis points of loss in the Amherst base case. The authors then examine the risk–return on the securities themselves, arguing that the M-1 tranche is unlikely to ever take a loss. The M-2 tranche is more “cuspy” but has value at initial pricing levels. Finally, they investigate whether this transaction has been an effective risk transfer for Freddie Mac. The authors’ view is that it is generally very effective but provides insufficient protection in high-prepayment/high-default environments.

TOPICS: MBS and residential mortgage loans, legal/regulatory/public policy

  • Copyright © 2013 Amherst Securities Group LP. All rights reserved. Not to be reproduced or redistributed without permission.
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The Journal of Structured Finance: 19 (3)
The Journal of Structured Finance
Vol. 19, Issue 3
Fall 2013
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The First GSE Risk-Sharing Deal: An Effective Risk Transfer Mechanism?
Laurie S. Goodman, Lidan Yang, Brian Landy
The Journal of Structured Finance Oct 2013, 19 (3) 33-42; DOI: 10.3905/jsf.2013.19.3.033

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The First GSE Risk-Sharing Deal: An Effective Risk Transfer Mechanism?
Laurie S. Goodman, Lidan Yang, Brian Landy
The Journal of Structured Finance Oct 2013, 19 (3) 33-42; DOI: 10.3905/jsf.2013.19.3.033
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  • Article
    • Abstract
    • STRUCTURE OF THE DEAL
    • REFERENCE COLLATERAL POOL
    • A FEW NOTES ON SEVERITY
    • RETURN PROFILE ON M-1 AND M-2 TRANCHES
    • DEAL STRUCTURE IMPACT ON FREDDIE RISK PROFILE
    • IMPLICATIONS FOR G-FEES AND CONCERNS WITH THE STRUCTURE
    • CONCLUSION
    • ENDNOTES
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  • PDF (Subscribers Only)

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