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Freddie Mac offloads more credit risk to insurers

Backstops STACR deals

Freddie Mac is continuing in its efforts to limit the taxpayers’ liability by obtaining a number of insurance policies designed to cover much of the remaining credit risk associated with several of its Structured Agency Credit Risk transactions from earlier this year.

The policies were obtained under the Agency Credit Insurance Structure, which is intended to attract private capital from non-mortgage guaranty insurers and reinsurers.

According to Freddie Mac, the transactions are the first two ACIS deals that provide coverage based on both first loss and actual losses realized on a reference pool of residential mortgages.

The ACIS deal covers two STACR transactions, STACR Series 2015-HQ1 and STACR Series 2015-DN1.

STACR Series 2015-HQ1 features a reference pool of 75,508 recently originated single-family mortgages with an unpaid principal balance of more than $16.5 billion.

The deal was Freddie’s first high loan-to-value risk-sharing bond of 2015, which is supported by loans with LTV ratios of 80-95%.

According to Freddie Mac, the underlying loans were originated from April through July 2014.

The underlying loans of STACR Series 2015-HQ1 carried an average balance of $219,203 and a weighted average original LTV of 92%.

STACR Series 2015-DN1 was Freddie’s first deal to offer investors the opportunity to secure actual loss positions.

STACR Series 2015-DN1 was actually upsized from $720 million to $1.01 billion due to market demand.

STACR Series 2015-DN1 had a reference pool of seasoned single-family mortgages originated in the fourth quarter of 2012 with an unpaid principal balance of more than $31.9 billion. Freddie Mac holds the senior loss risk in the reference pool, and a portion of the risk in the Class M-1, M-2, M-3 and the first loss Class B tranche.

These two policies cover up to a combined maximum limit of approximately $223 million of losses that Freddie Mac incurs when homeowners default, Freddie said in a release.

These transactions take the total number of ACIS deals to nine. Coupled with the 14 STACR deals, Freddie Mac has laid off a substantial portion of credit risk on more than $313 billion of unpaid principal balance in single-family mortgages.

"The reinsurance market's response was very good for ACIS coverage expanding to both first loss and actual losses," said Kevin Palmer, vice president of Freddie Mac single-family strategic credit costing and structuring.

"We continue to improve our innovative products while supporting the nation's housing markets,” Palmer continued.

“We've increased private market participation and have further expanded our panel of both foreign and domestic investors,” Palmer added. “Combined with our previous ACIS transactions, we have now acquired more than $1.7 billion in additional insurance coverage since 2013."

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