STACR and CAS: What They Tell Us

Abstract

In this article, we look at what the execution of Freddie Mac’s Structured Agency Credit Risk (STACR) and Fannie Mae’s Connecticut Avenue Securities (CAS) tell us about guarantee-fee pricing in a capital-markets driven world. We then contrast the subordination requirements being discussed in Washington (such as in Corker-Warner) with the actual amounts of subordination behind Fannie Mae’s and Freddie Mac’s transactions and discuss where the appropriate middle ground may lie. Finally, we discuss remaining policy changes required to invite greater investor participation and hence lower credit guarantee costs.