Last week, we observed that Fannie and Freddie’s purchases of low score and HLTV loans grew by about half in 2018.  While still small percentages of overall book, we have learned the hard way that small exposures have large consequences.  In this report, we assess what these may be, noting the interplay between the higher risk books and the transformation of GSE counterparty exposures.  Given minimal GSE capital, prolonged delinquencies could be highly problematic.

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