One of the subtler lessons of the financial crisis is that offloading one kind of risk can mean taking on another. At Freddie Mac, Kevin Palmer is taking this to heart.
These days Fannie Mae and Freddie Mac offload most of the credit risk on new mortgages that they acquire through the capital markets, getting taxpayers off the hook for losses. Their two biggest programs, Freddie's Structured Agency Credit Risk and Fannie's Connecticut Avenue Securities, have a wide investor base, allowing them to price this risk efficiently. But these two programs transfer the risk only after loans have been seasoned for a year or so, leaving taxpayers exposed in the meantime.