Housing Finance at a Glance: Monthly Chartbooks
The August 2018 edition of At A Glance, the Housing Finance Policy Center’s reference guide for mortgage and housing market data, includes updated figures describing GSE guarantee fees, mortgage delinquency rates, GSE risk-sharing transactions, Federal Reserve’s MBS purchase activities, and a special quarterly feature on GSE loan composition, repurchase rates, defaults, and loss severity.
Pricing data for GSE Credit Risk Transfer Securities now available
This month we are introducing new charts showing historical market pricing for GSE credit risk transfer (CRT) securities (see page 27). The charts are based on daily pricing data provided by Vista Data Services. Vista created indices by vintage; the indices are comprised of the bottom mezzanine tranche of each deal issued in a particular year, plus the equity, B, tranche, if issued. These data are a major enhancement over the previous CRT charts, which showed tranche-level pricing only at the time of issuance. We show four separate pricing charts: (i) 2015 vintage index, 2016 vintage index and 2017 M index, (ii) 2017 M and B indices, (iii) 2014/15, 2016, 2017 low-LTV indices, and (iv) 2014/15, 2016, 2017 high-LTV indices. Note that the first chart compares 2015 and 2016 vintage indices to the 2017 M index instead of the 2017 vintage index. The 2017 vintage index includes some B tranches, which 2015 and 2016 vintage indices don’t, as they were not issued.
There are some interesting things to note.
First, the clear tightening of prices over time. This is to be expected because strong house price appreciation has significantly boosted borrower equity in the underlying homes and reduced the likelihood that CRT investors will take a loss. This is more true for older vintages since they have accumulated more house price appreciation than recent vintages. The 2017 indices, which haven’t witnessed as much appreciation as the older vintages, should, all other factors equal, trade at wider spreads. If robust appreciation continues, which we expect in the short run given the shortage of housing supply, spreads for 2017 vintage will continue to tighten.
At the same time, the indices are not fully comparable due to variances in the level of subordination across deals over time. As the CRT market has developed, the differences between the Fannie and Freddie deals have disappeared, and the structures have become standardized. In particular, the early Fannie deals had thinner first loss slices than more recent deals. As a result, the M tranches in 2017 deals have more credit enhancement at issuance than M tranches in previous vintages, which contributes to tighter spreads.
The charts are also useful in visualizing the impact of historical credit events on CRT prices. The most notable credit event in the last 12 months was the onset of hurricanes Harvey, Irma and Maria in August/September 2017. All vintage indices show significant widening of spreads in the immediate aftermath of the disasters. This was followed by gradual tightening as the impacted geographies began recovering.
We anticipate updating these charts every month with the latest pricing. Indices for 2018 CRT transactions will be added starting early 2019.