Freddie Mac continues reducing credit risk with new insurance policies

Backstops STACR credit risk-sharing deals

Freddie Mac announced Monday that it obtained an additional insurance policy designed to cover much of the remaining credit risk associated with one of its Structured Agency Credit Risk transactions from earlier this year.

Freddie Mac obtained the insurance policy under its Agency Credit Insurance Structure, which is intended to attract private capital from non-mortgage guaranty insurers and reinsurers.

The new ACIS policy transfers much of the remaining credit risk associated with Freddie Mac’s first actual loss STACR offering, April’s STACR Series 2015-DNA1, to insurance and reinsurance companies around the globe.

STACR Series 2015-DNA1 was Freddie’s first deal to offer investors the opportunity to secure actual loss positions.

STACR Series 2015-DNA1 was actually upsized from $720 million to $1.01 billion due to market demand.

STACR Series 2015-DNA1 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.

In July, Freddie Mac first announced that it obtained insurance policies to cover some of the credit risk on STACR Series 2015-DNA1.

Now, Freddie Mac is covering even more of the credit risk.

According to Freddie Mac, the new ACIS policy transfers up to a combined maximum limit of approximately $132.5 million of losses on a pool of single-family loans acquired in the fourth quarter of 2012.

“We continue to expand the panel of participating reinsurers as the ACIS program matures,” said Kevin Palmer, vice president of Freddie Mac's single-family strategic credit costing and structuring.

“We have now acquired more than $1 billion in additional insurance coverage this year with six ACIS transactions, and almost $2 billion since the program's inception in 2013,” Palmer continued. “This transaction includes new and past participants as we strive for consistency in how and where we transfer credit risk.”

In total, Freddie Mac has offered up 15 STACR risk-sharing deals, including first loss and actual loss risk transactions, and now has completed 10 ACIS transactions since mid-2013.

Through STACR and ACIS, Freddie Mac has laid off a “substantial portion” of credit risk on more than $333 billion of unpaid principal balance in single-family mortgages, Freddie Mac said in a release.

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