Freddie Mac’s newest form of mortgage reinsurance transfers the risk of credit losses on 15-year residential mortgages that it insures.
The government sponsored enterprise said Wednesday that it recently obtained an Agency Credit Insurance Policy (ACIS) that provides protection up to a combined maximum limit of approximately $201 million of losses on single-family loans. The transfers a portion of the credit risk on an $11.1 billion reference pool of single-family loans purchased in the third and fourth quarters of 2015.
Unlike previous ACIS policies, which all transfer the credit risk on 30-year mortgages, this one is not linked to a reference pool that already has partial coverage from another risk transfer program called Structured Agency Credit Risk, or STACR. So far, the STACR program, a kind of credit linked note, does not transfer credit risk on 15-year mortgages.
Freddie, and sister company Fannie Mae, purchase mortgages from lenders and issue securities backed by the loans that are guaranteed against credit losses. They are tasked by their regulator, the Federal Housing Finance Authority, which obtaining reinsurance on the bulk of this coverage, in order to avoid putting taxpayers on the hook. And 15-year mortgages represent a relatively small percentage of their total business.
"We are very excited about the strong market reception to this ACIS transaction that represents an expansion of coverage to another mortgage product as well as our credit risk transfer capabilities," Kevin Palmer, Freddie Mac’s Senior Vice President of single-family credit risk transfer, said in a press release. "By adding 15-year mortgages, we further expand our ability to reduce taxpayer risk."
Through ACIS, Freddie Mac obtains insurance policies that transfer a portion of the credit risk associated with mortgage reference pools to insurance and reinsurance companies around the globe. Freddie Mac has placed approximately $4.5 billion in insurance coverage through seventeen ACIS transactions since the program's inception in 2013.