Freddie Mac Releases Non-Standard Dataset

New Single-Family Non-Standard Dataset

Freddie Mac continues to demonstrate a commitment to data transparency through the release of a new Non-Standard Dataset (NSD). This dataset is composed of loans that have previously been excluded from the Single-Family Loan-Level Dataset (Standard Dataset or SD) for having features that do not align with Single-Family credit risk transfer (CRT) eligibility criteria, such as adjustable-rate mortgages (ARM), interest-only, credit enhancements other than primary mortgage insurance, and limited documentation. Analysis of the two datasets reveal that historical performance of the loans in the NSD differs significantly from the SD.

Key Takeaways

1. Product type (i.e. ARM and interest-only) is the biggest driver of the performance difference. These loans do not perform as well as fixed-rate, fully amortizing mortgages, even when controlling for credit attributes. Please note that interest-only mortgages have not been acquired by Freddie Mac since 2010, and the ARM population has decreased dramatically since 2007.
2. The loans in the NSD have less favorable credit attributes, and due to the nature of the product types (adjustable rate, interest-only/non-amortizing), the loss experience was magnified during the financial crisis.
3. Severity is mostly comparable between the NSD and SD. The large difference in historical losses in the NSD is primarily driven by significantly higher defaults, as severity is only a minor contributor.