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Freddie Mac’s CRT program posts record performance 

Issuances through agency’s flagship credit-risk transfer programs were at an all-time high over first half of 2022

Freddie Mac notched record credit-risk transfer (CRT) issuances of some $15 billion during the first half of this year, protecting $358 billion in single-family mortgages.

For the second quarter alone, Freddie Mac also posted record CRT issuance of $6.5 billion, protecting $151 billion in single-family mortgages.

The offering totals were across the agency’s flagship Structured Agency Credit Risk (STACR) and Agency Credit Insurance Structure (ACIS) programs, along with other risk-sharing transactions.

The agency’s flagship offerings alone accounted for $14.6 billion of issuance over the first half of 2022 — via six STACR and eight ACIS transactions. That includes the agency’s largest-ever CRT issuance, a $1.9 billion offering dubbed STACR 2022-DNA2. 

Freddie Mac also introduced new ACIS deal structures this year. They include ACIS 2022-COR1, which was the first offering comprised solely of cash-out refinance loans as collateral; and ACIS 2022-AFH1, which reduces the agency’s credit risk by providing insurance protection for loans as they are purchased.

“Executed in June, ACIS 2022-AFH1 accelerated the placement of loans into an ACIS transaction by enabling underwriters to evaluate deal collateral via a proxy pool of previously securitized loans,” a Freddie Mac description of the transaction states.

Through the ACIS transactions, a portion of the credit risk on mortgages backed by Fannie and Freddie is shifted to insurers in the private sector. The agencies pay monthly premiums in exchange for insurance coverage on a portion of the designated reference loan pools.

Via Freddie Mac’s STACR transactions, private investors participate with the agency in sharing a portion of the mortgage credit risk in the reference loan pools retained by the agency. Investors receive principal and interest payments on the STACR notes they purchase, but if credit losses exceed a predefined threshold per the security issued, then investors are responsible for absorbing the losses exceeding that mark.

On another front, during the first half of 2022, Freddie Mac’s Single-Family CRT program made two tender offers for certain STACR notes, resulting in more than $4.5 billion of outstanding notes (based on original principal balance) being tendered and accepted. The offering price for the notes outstanding in the second offeringSTACR 2022-TO2, for example, ranged from $1,000.63 to $1,017.81 per thousand dollars of outstanding principal amount, depending on the series vintage. The notes are linked to five credit-risk transfer (CRT) securitization deals completed in 2019 and three from 2018. 

“The purpose of a STACR tender offer is to manage Freddie Mac’s costs related to credit-risk transfer by repurchasing STACR notes that have substantially deleveraged (due to decreases in credit risk of related reference pools and increases in credit enhancements to STACR securities) and that no longer provide Freddie Mac with an economically sensible means of transferring credit risk,” states a Freddie Mac explanation of its tender transactions. “Following a tender offer transaction, any notes that are tendered and accepted in the tender offer will be retired and cancelled.” 

Freddie Mac has transferred nearly $100 billion in credit risk on more than $3 trillion in single-family mortgages through its STACR and ACIS programs since launching its first CRT transaction in 2013. As of the end of the second quarter of this year, 59% of the agency’s single-family mortgage portfolio was covered by some form of credit enhancement.

“Freddie Mac’s Single-Family CRT program delivered record performance, introduced a new ACIS structure and reduced our costs via two STACR tender offers in the first half,” said Mike Reynolds, Freddie Mac’s vice president of single-family CRT. “We added 17 new investors/(re)insurers in the second quarter, demonstrating continued market demand for our offerings and establishing the largest average investor base in program history.”

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