不破不立：GSE資本框架和CRT

1、North America Securitized Products Research17 August 2020Correction (first published 30 July 2020)You break it, you own itGSE capital framework and CRTIn May, FHFA Director Calabria released his new GSE capital proposal; the new proposal would bring capital levels to around 4%, but draws on the comp

2、lexity of the modern bank capital framework to include a leverage ratio, risk based capital, and various buffers and in doing so, makes CRT economically unattractive for the GSEs. GSE reform needs to ensure stability in the MBS market, but also preserve price signaling from the private sector; ensur

3、ing the smooth functioning of the conventional TBA market is paramount, and that requires a government backstop behind private capitalIn this piece, we discuss the broader goals of GSE reform before diving into the specifics of the capital rules negative impact on CRTIf implemented, the capital rule

4、 would make single- and multi-family CRT transactions uneconomicalUnder the standardized approach, single and multi-family loan capital is calculated as per static grids that reference loan specific risk factorsSingle- and multi-family CRT capital is calculated using credit support, bond thickness a

5、nd expected losses with a RWA floor of 10%Multi-family CRT capital calculations can also vary between Fannie and Freddie given their different approaches to CRTThe 4% leverage ratio requirement at a balance sheet level reduces the benefits of single and multi-family CRTThe capital rule reduces the c

6、apital relief provided by CRT particularly when compared to the cost of credit protectionThe leverage ratio and the treatment of CRT under the risk-based capital framework need to be addressed to preserve CRTSecuritized Products Research Kaustub S. Samant AC(1-212) 834-5444 HYPERLINK mailto:kaustub.

7、s.samant kaustub.s.samantChong Sin AC(1-212) 834-2611 HYPERLINK mailto:chong.c.sin chong.c.sinNick Maciunas AC(1-212) 834-5671 HYPERLINK mailto:nicholas.m.maciunas nicholas.m.maciunasJohn Sim(1-212) 834-3124 HYPERLINK mailto:John.Sim John.SimBrian Ye(1-212) 834-3128 HYPERLINK mailto:brian.ye brian.y

8、eAlex D. Kraus(1-212) 834-5954 HYPERLINK mailto:alexander.d.kraus alexander.d.krausAni Gelashvili(1-212) 834-2605 HYPERLINK mailto:ani.gelashvili ani.gelashviliJ.P. Morgan Securities LLCSee page 20 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with com

9、panies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HYPERLINK / You break it,

10、you own it: GSE capital framework and CRTIn May, FHFA Director Calabria released his new GSE capital proposal; the new proposal would bring capital levels to around 4%, but draws on the complexity of the modern bank capital framework to include a leverage ratio, risk based capital, and various buffe

11、rs and in doing so, makes CRT economically unattractive for the GSEs. GSE reform needs to ensure stability in the MBS market, but also preserve price signaling from the private sectorIn this piece, we discuss the broader goals of GSE reform before diving into the specifics of the capital rules negat

12、ive impact on CRTIf implemented, the capital rule would make single and multi-family CRT transactions uneconomicalUnder the standardized approach, single- and multi-family loan capital is calculated as per static grids that reference loan specific risk factorsSingle- and multi-family CRT capital is

13、calculated using credit support, bond thickness and expected losses with a RWA floor of 10%Multi-family CRT capital calculations can also vary between Fannie and Freddie given their different approaches to CRTThe 4% leverage ratio requirement at a balance sheet level reduces the benefits of single a

14、nd multi-family CRTThe capital rule reduces the capital relief provided by CRT particularly when compared to the cost of credit protectionThe leverage ratio and the treatment of CRT under the risk-based capital framework need to be addressed to preserve CRTGSE reform needs to ensure stability in the

15、 MBS market but also preserve price signaling from the private sectorBack in May, FHFA Director Calabria released his revisions to Director Watts prior 2018 capital proposal. The new proposal draws on the complexity of modern bank capital requirements, with leverage and risk-based capital requiremen

16、ts interacting with other prescribed buffer amounts. After all is said and done, the proposal calls for an overall level of capital around 4% of consolidated assets. Total capital is a key variable in the determination of g-fees, but the interactions of the individual, sub- level capital constraints

17、 end up being binding in interesting ways. In particular, the leverage ratio and RWA floor in the rule make CRT economically unattractive to the GSEs. This, in turn, raises fundamental questions about the nature of GSE reform and recapitalization; if the GSEs maintain their market share, how will th

18、ey receive price signals on mortgage credit? In our view, without a mechanism like CRT, the goal of fostering GSE competition with the (fully) private market is hard to achieve. Below, we discuss these conceptual issues before diving into the details of the capital proposals specific impact on singl

19、e and multi-family risk transfer.What is the purpose of raising capital for the GSEs? In our view, it can create a buffer of private investment in front of a government guarantee while at the same time forcing the GSEs to align their g-fees with private sector pricing. However, the capital proposal

20、emphasizes that stability is the FHFAs central focus. One only needs to read through the list of buffers to confirm this (i.e, the Stress Capital Buffer, the Stability Capital Buffer, the Countercyclical Capital Buffer Amount, and the Prescribed Capital Conservation Buffer Amount). The total amount

21、of capital is tailored to be sufficient for the GSEs to withstand another 2008 like crisis, at least in theory. Of course, fitting to the last crisis provides no guarantee that one will weather the next one.At a fundamental level, to ensure that the GSE TBA markets remain liquid, investors must know

22、 that the products cashflows are subject solely to interest rate, rather than credit risk. Whatever the level of capital chosen, for the TBA market to function investors will need some assurance that the government is still backstopping the securities. Prior to the 2008 crisis, the market operated (

23、fairly or not) under the implicit guarantee frameworkthat is, that Fannie and Freddie were too large and central to the US mortgage market to be allowed to fail.That assumption was proven correctthe government has, in one way or another, backstopped the GSEs and their MBS repeatedly over the last de

24、cade. During the mortgage crisis, Treasury provided a line of credit to the GSEs that helped them stay afloat amidst substantial losses, and the Fed chose conventional MBS as a tool for multiple quantitative easing efforts. Treasurys Preferred Stock Agreements with the GSEs left those lines intact f

25、or the last decade, enforcing a limited, but explicit, guarantee. In the most recent financial crisis, GSE MBS once again was a key part of the Feds securities purchase program. While there is no Ginnie-like full faith and credit explicit guarantee on the securities, GSE MBS is inextricably intertwi

26、ned with the USs financial plumbingjust look at bank LCR Level 2 assets. Moreover, the introduction of UMBS and the cross-GSE guarantee has made the agencies themselves difficult to untangle.This all indirectly signals to investors that it would be extremely disruptive and politically challenging to

27、 let the GSEs actually fail; as such, should they be required to pay for an explicit wrap on the MBS upfront? Such a policy change would require an act of Congress, and thus is admittedly infeasible in the current political environment. Nonetheless, if stability is paramount, it ought to be part of

28、the discussion.While the new capital proposal doesnt focus on it, another goal of GSE reform should be fostering a competitive marketplace for mortgage credit. The GSEs and Ginnie dominate the mortgage lending landscape, touching the vast majority of total mortgage production (Exhibit 1). Private-la

29、bel securitization and bank portfolios compete for the edges of the GSE footprint, but by and large the private market is limited to jumbo loans that fall outside of the government purview. There are two salient reasons for this: 1) the technical benefits of the GSE architecture, including standardi

30、zed and electronified underwriting platforms, as well as the efficiency of the TBA market for pipeline hedging, and 2) the private market finds it challenging to compete on price for most of the GSE footprint.Exhibit 1: The governments footprint in the mortgage market remains exceedingly largeSingle

31、 family loan origination by channel, $bn3500300025002000150010005000Portfolio PLS GNMA GSE00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20Source: J.P. MorganPolicy makers should aim to preserve efficient plumbing, where possible, but should also try to price risk appropriately so that

32、the private market can actively participate in the market. In the private market, an insurer needs to provide a market clearing return on equity by charging suitable guarantee fees in proportion to its statutorily required capital. For example, at todays level of g-fees (roughly 60bp, including annu

33、alized LLPAs), the proposals 4% capital implies a pre-tax, pre-expense ROE of around 15% (see Exhibit 2). Assuming that is the market clearing return (that remains to be seen), regulators could aim to foster competition with the private market by dialing up capital, thus forcing the GSEs to increase

34、 the price of their guarantee and make them more competitive with the private market. That being said, it is not at all clear from the proposal that the FHFA actually intends to shrink the GSE footprint.Exhibit 2: Required g-fees to reach target pre-tax, pre-expense, pre-loss ROE levels, as a functi

35、on of capital requirementsPre-tax, pre-expense and pre-loss implied G-fees based on capital and ROE requirements, in bp2%3%4%5%6%Capital7%8%9%10%11%12%6%12182430364248546066728%162432404856647280889610%203040506070809010011012012%2436486072849610812013214414%28425670849811212614015416816%32486480961

36、1212814416017619218%3654729010812614416218019821620%406080100120140160180200220240ROESource: J.P. MorganHowever, its not necessary to force the GSEs to cede market share to the private sector in order to achieve market-based pricing and draw in private capital. Credit Risk Transfer is already extens

37、ively utilized by the GSEs, and allows the agencies to sell off credit risk and pull in upfront, hard dollars from the private market, while still utilizing the GSE plumbing advantages. The regular sale of CRT also provides price signals to the FHFA as to the market clearing level of guarantee fees

38、(more on this later).To be fair, the recent financial disruption exposed the extent to which the marginal CRT buyer operated with short term leverage; in times of financial stress, it ischallenging to dissect the price moves on existing CRT tranches. Untangling changes in credit risk assumptions fro

39、m funding and liquidity pressures is difficult, making the price signal less valuable. However, the GSEs dont need to sell CRT in the middle of market turmoilthey can wait until calmer times to bring new tranches to market.A capital framework that abandons CRT leaves the FHFA without a useful tool f

40、or setting guarantee feesthe fundamental lever in the GSEs businesses. It also removes an avenue for pulling in hard, upfront dollars of private capital at a time when the GSEs are setting up for a heavy lift in that regard. Given the lack of emphasis in this new GSE capital proposal on targeting a

41、level of overall capital that would push the GSE footprint into the private market, it should be reworked to save CRT.Proposed capital framework makes CRT issuance uneconomicalBenefits of Single Family CRTCRT offers several benefits for the GSEs, regulators, private entities and ultimately, the cons

42、umer. First, the sector has proven itself to be an effective risk transfer mechanism for mortgage credit risk. Since 2013, Fannie Mae and Freddie Mac have issued $87bn of CAS and STACR transactions, which has enabled them to transfer the credit risk from 33% of their book (Exhibit 3). Most deals are

43、 backed by new issue collateral, but there have also been deals issued using seasoned re-performing or HARP collateral. Without CRT, the GSEs would mainly be able to transfer risk to mortgage insurers and only on high LTV collateral. CRT enables a wide range of global investors, from hedge funds to

44、money managers, to act as reinsurers for all forms of GSE credit risk.Exhibit 3: CRT has allowed the GSEs to transfer risk from a little over 30% of their book% risk transferred40% of credit risk transferred30%20%10%0%Jul 13Apr 14Jan 15Oct 15Jul 16Apr 17Jan 18Oct 18Jul 19Apr 20Note: % risk transferr

45、ed calculated as CAS + STACR collateral outstanding / agency MBS outstanding Source: J.P. MorganSecondly, without CRT there would be limited transparency into market pricing of credit risk on new issue collateral. There are two major securitizations of new issue credit risk: private label securitiza

46、tions (PLS) and CRT. The PLS market is small relative to the broader origination of private label loans (Exhibit 4), and subordinate PLS bonds tend not be traded as frequently as AAA securities. CRT deals, on the other hand, are to be issued on a regular basis and cover the whole range of GSEcollate

47、ral. Secondary trading levels are also available on TRACE. This makes CRT a key source of market pricing of mortgage credit risk.Exhibit 4: New issue RMBS market is small which makes CRT the biggest source of mortgage credit risk pricing% jumbo loans securitized7% of jumbo loans securitized6%5%4%3%2

48、%1%0%201020112012201320142015201620172018Loan VintageSource: J.P. MorganSpreads on CRT securities can be thought of as the markets view of the g-fee. In fact, the FHFA itself, as part of its CRT progress reports, has calculated an implied g- fee using new issue CRT trading levels (Exhibit 5). Moving

49、 forward, these implied g-fees can be an important guide for regulators and/or the GSEs in calibrating the level of g-fees. For example, a CRT implied g-fee that is persistently higher than the g-fee charged by the GSEs may suggest that the GSEs are underpricing mortgage credit risk or vice versa. L

50、arge differences between the two g-fees could be a sign that g-fees need to be adjusted higher or lower.Exhibit 5: In the past, FHFA has used CRT spreads to calculate a market implied g-feeCRT Implied G-fee (bp) FHFAs calculation of the CRT implied g-fee70High LTVLow LTV60 50 40 3020100Nov-16Mar-17J

51、un-17Sep-17Dec-17Apr-18Jul-18Note: FHFA stopped reporting these g-fees in 2018 Source: J.P. Morgan, FHFALastly, the CRT market doesnt only benefit the GSEs as the technology has been adopted by other mortgage market participants to transfer risk and optimize their balance sheets. Mortgage insurers h

52、ave introduced MI CRT transactions that allow them to transfer tail risk to private investors and thereby, reduce PMIER levels.Banks have adopted CRT structures to transfer risk on their retained loans that cant all be delivered to the GSEs. These smaller CRT-like programs will not be as accessible

53、without a robust GSE CRT market that has an active pool of investors.COVID-19 related market disruptions did highlight certain challenges associated with CRT. As with many credit products, CRT spreads widened and issuance cameto a halt in March. It is worth remembering, however, that CRT was not alo

54、ne in this regard. Most new issue markets, including investment-grade corporates, were on pause during this period when risky assets sold off. However, as markets settled down, CRT issuance has resumed; as of publishing, Freddie Mac has priced 2 deals since the end of March. Temporary market disrupt

55、ions should not be a major concern as the market should be willing to absorb the risk at a later date when spread volatility subsides.A way to reduce CRT spread volatility during times of stress would be to decrease CRT capital requirements, which would bring in bank investors and increase dealer in

56、ventories. Under the SSFA formula, CRT capital is higher than the market value of the security itself. By bringing capital down, a stable and large investor base in the form of bank portfolios would be added to the CRT market. Furthermore, in times of stress, dealers would likely be more willing to

57、absorb any forced selling from investors, reducing spread volatility and limiting market disruption.Benefits of Multifamily CRTMultifamily CRT has been instrumental for the GSEs and their expanding role in the multifamily financing market over the past decade+ by helping to facilitate the large grow

58、th of the multifamily market in response to growing housing unaffordability (Exhibit 6). The GSE footprint in the multifamily market grew from just 25% of multifamily loans outstanding to 39% by 2019 (Exhibit 7).Exhibit 6: The multifamily market has grown significantly over the past decade following

59、 the GFC induced household balance sheet damage and growing housing unaffordabilityRenter household % versus % of MSAs where renting is cheaper than buying a home% of MSAs where renting is cheaper than buying (lhs)100%90%80%70%60%50%40% Households renter occupied (rhs)2000200220042006200820102012201

60、42016201833%32%31%30%29%28%27%26%25%Source: J.P. Morgan, FHFA, Costar, Case-ShillerExhibit 7: The growth of the multifamily market has been supported by GSE financingTotal multifamily debt outstanding ($bn) and GSE share (%)Total Multifamily Debt Outstanding ($bn, rhs)GSE share (lhs)40%35%30%25%20%2