Freddie Mac announced Monday that it obtained its largest insurance policy to date 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 second actual loss STACR offering, June’s STACR Series 2015-DNA2, to insurance and reinsurance companies around the globe.
According to Freddie Mac, the policy transfers up to a combined maximum limit of approximately $502.6 million of losses on a pool of single-family loans acquired from August to November 2014 – making it Freddie Mac’s largest ACIS insurance policy to date.
The STACR Series 2015-DNA2 offering was Freddie Mac’s second transaction where losses will be allocated based on the actual losses realized on the related reference obligations instead of allocating losses using a fixed severity approach.
The underlying loans in STACR Series 2015-DNA2 carried an unpaid principal balance of more than $31.9 billion.
"We are pleased to announce the execution of this latest ACIS policy,” said Kevin Palmer, vice president of Freddie Mac's Single-Family strategic credit costing and structuring. “The size of this transaction reflects the continued significant interest from the industry and demonstrates that the insurance sector has strong, deep capacity for this risk.”
According to Freddie Mac, this transaction brings the total insurance coverage obtained in the ACIS program to more than $1.5 billion in 2015 with seven ACIS transactions and more than $2.4 billion since the program's inception.
Since the program’s inception, Freddie Mac has introduced many risk-sharing initiatives, with 15 STACR offerings and now 11 ACIS transactions since mid-2013.
Four of the ACIS transactions have provided coverage on a first loss and actual loss basis, Freddie Mac said.
STACR Series 2015-DNA1 was actually upsized from $720 million to $1.01 billion due to market demand.
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.
Freddie Mac was the first agency to market credit risk transfer transactions with STACR and ACIS, and has since grown its investor base to more than 170 unique investors, including reinsurers, Freddie Mac said.