RT Journal Article SR Electronic T1 The Case for Alternative Credit Enhancement Structures
in GSE Securitizations JF The Journal of Structured Finance FD Institutional Investor Journals SP 76 OP 84 DO 10.3905/jsf.2012.18.1.076 VO 18 IS 1 A1 Laurie S. Goodman A1 Landon D. Parsons YR 2012 UL https://pm-research.com/content/18/1/76.abstract AB Government-sponsored enterprises (GSEs), by charter, cannot be in a first-loss position when a loan has a loan to value (LTV) over 80. As a result, all loans bought by GSEs with more than 80 LTV have private mortgage insurance (PMI). However, three of the seven legacy mortgage insurers have run into financial difficulties and are no longer writing insurance. Of the four entities that are writing mortgage insurance, two have less than an investment-grade rating (and a credit default swap [CDS] spread above 1,500 basis points [bps]), and one has a high risk-to-capital ratio. In this article, we review the state of the mortgage insurance industry, as well as answer Acting Director of the Federal Housing Finance Agency (FHFA) Edward J. DeMarco’s recent call to develop structures in which other private market participants share some of the risk in high-LTV lending. We then discuss some structural options that transfer this credit risk through the capital markets.TOPICS: Credit risk management, technical analysis