Mortgage bonds are getting riskier

CRTs come with lower credit scores, higher debt ratios

TRD New York /
May.May 16, 2018 11:10 AM

It may not be time to panic yet, but investors are starting to buy riskier mortgage bonds.

Homeowners whose mortgages get packaged into so-called credit risk transfer securities (CRTs) have lower credit scores and higher debt levels than they did in recent years, Bloomberg reported.

CRTs, like traditional mortgage-backed securities, are issued by Fannie Mae and Freddie Mac, the government-sponsored mortgage giants. But unlike traditional housing bonds, CRTs aren’t fully guaranteed by the federal government. That means investors have to cover for losses, and makes the recent fall in credit scores worrying to some.

“Underwriting starts out very strict and as time goes on, it’s kind of the proverbial frog in the pot of boiling water,” John Kerschner of Janus Henderson Group told Bloomberg. “The heat keeps going up and up and then you realize, oh, this is really not good.”

The average credit score in Fannie Mae’s most recent two CRT issues was 743, compared to 765 in 2013. Meanwhile borrowers’ average debt-to-income ratio rose to 36 percent, up from 31.7 percent in 2013.

Still, the total volume of CRTs is just $50 billion — a fraction of the $40 trillion bond market — and some observers are more concerned about corporate bonds. Bank of America analysts noted that looser lending standards will be “prudent rather than leading to excesses as seen in the last decade.” [Bloomberg]Konrad Putzier


Related Articles

arrow_forward_ios
With a cooling trade war, stocks perform well, including real estate. (Credit: iStock)

Real estate stocks push up this week as U.S.-China trade tensions ease

Real estate stocks push up this week as U.S.-China trade tensions ease
416 West 25th Street and Maverick Real Estate Partners principal David Aviram (Credit: Google Maps and LinkedIn)

Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case

Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case
Bank OZK CEO George Gleason (Unsplash; Bank OZK)

Bank OZK’s lending up in third quarter

Bank OZK’s lending up in third quarter
Opendoor CEO Kevin Wu, Daniel Morillo and Ken Griffin (Getty; Opendoor; LinkedIn)

Opendoor hires CIO from Ken Griffin’s Citadel

Opendoor hires CIO from Ken Griffin’s Citadel
WeWork CEO Sandeep Mathrani (Wikipedia Commons; iStock)

WeWork bonds, already junk, downgraded by Fitch

WeWork bonds, already junk, downgraded by Fitch
(Getty, iStock)

Cash-strapped borrowers are increasingly giving keys back to lenders

Cash-strapped borrowers are increasingly giving keys back to lenders
(Getty)

Manhattan rents fall below $3,000 for first time since 2011

Manhattan rents fall below $3,000 for first time since 2011
Data on third quarter CRE investments suggests a nationwide improvement, but Manhattan has been slow to recover (iStock)

NY falls behind Dallas, LA in CRE investment as deals surge nationwide

NY falls behind Dallas, LA in CRE investment as deals surge nationwide
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...