Mortgage giant Freddie Mac is set to begin selling notes linked to default risk in pools of residential mortgage-backed securities.
The government-sponsored enterprise is actively working on developing credit risk-sharing initiatives that can help the firm manage residential credit risk, said Thomas Fitzgerald, a spokesperson for Freddie.
“Our intention is to create a credit product that will be well received by investors and become repeatable and scalable over time,” Fitzgerald told HousingWire.
He added, “But it is premature to provide details on any potential transactions while they are still being finalized.”
The risk-sharing initiatives are in line with the Federal Housing Finance Agency’s efforts to reduce the role of Fannie Mae and Freddie Mac in the RMBS market using a single-securitization platform.
Additionally, the risk-sharing transactions would be similar to the new mortgage finance system proposed under legislation backed by a group of senators, led by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va.
Their strategy consists of drafting a bill to replace the GSEs with a new government guarantor, known as the Federal Mortgage Insurance Corp. The draft legislation is known as the Housing Finance Reform and Taxpayer Protection Act of 2013.
The bill is set up to develop risk-sharing mechanisms that require private financiers in securities insured by the corporation to assume first-loss positions.
Additionally, the proposal would require private investors to take a loss of 10% of the principal underlying securities.