Last year, Freddie Mac and Fannie Mae began offering credit-risk mortgage bond deals in an effort to attract private capital back into the mortgage finance system.

When the first deal was offered by Freddie Mac, Ed DeMarco, who at the time was the acting director of the Federal Housing Finance Agency, said, “The transaction — a direct debt issuance — will assist Freddie Mac in transferring credit risk to the private sector on recently-acquired, single-family conforming loans."

DeMarco said that the $500 million offering was an effort to contract the presence of the GSEs in the marketplace.

In the subsequent months, Fannie Mae launched its own $675 million offering. The deal was a success in the eyes of Fannie Mae’s executive vice president for underwriting, pricing and capital markets, Andrew Bon Salle.

“By sharing risk with investors, Fannie Mae will continue to provide much needed liquidity to the market while attracting private capital participation in the housing market," Bon Salle said at the time. "The Connecticut Avenue Securities program was structured so that it does not impact the To Be Announced market, and is scalable and flexible enough to incorporate market feedback into future issuances."

In early 2014, Fannie launched its second deal, a $750 million note. “We’ve learned that the market has an appetite for consistency and we plan to respond by bringing regular C-deals to the market this year,” said Laurel Davis, vice president for credit risk transfer at Fannie Mae, when the deal priced.

"We are pleased to continue the momentum and strong investor interest of our inaugural transaction by reducing taxpayer risk and attracting additional private capital, while preserving an efficient TBA market."

Fannie’s third deal was offered in May. The $1.6 billion note was Fannie’s largest risk-sharing offering to date. At the time, Davis said that she anticipated bringing similar deals to the market in the future.

But analysts from Wells Fargo (WFC) now say that the upside potential of the risk-sharing deals has “vanished” as the spreads appear “rich compared to other asset classes.”

In Wells Fargo’s Mortgage Market Monitor, analysts Greg Reiter, Mark Fontanilla, Randy Ahlgren, and Maria Mascia write, “we think the upside potential particularly of the risk-sharing transactions has dissipated,” as investors look to other subsectors for more risk.

“In comparing the risk-sharing BBB-rated notes to other BBB-rated assets with similar weighted-average lives, the risk-sharing notes in general seem rich,” the analysts wrote.

They note the tightening spreads on the 2013 risk-sharing offerings from Fannie and Freddie, which have averaged “about 93 basis points” for the BBB-rated notes and about “195 basis points” for non-rated notes.

The analysts said that investors are able to pick up a higher yield in other BBB-rated assets like three-year-BBB subprime auto. The analysts said that investors may be able to pick up as much as 250 bps in yield versus the GSE offerings.

“We note that the STACR (Freddie securities) and CAS (Fannie securities) spreads are now roughly comparable to traditional non- agency RMBS, such as BBB 2005 subprime RMBS,” the analysts said.