Freddie Mac launched a new asset class with the beginning of the Structured Agency Credit Risk (STACR) series in July 2013 as a strategy for selling credit risk on single-family mortgages to private investors.
Two and a half years later, Freddie Mac has succeeded in the transferring of a substantial portion of credit risk on more than $385 billion of UPB in single-family mortgages backed by the Enterprise, through STACR and the Whole Loan Security (WLS) and Agency Credit Insurance Structure (ACIS) programs. Freddie Mac’s investor base has grown to include approximately 190 unique investors, which includes reinsurers, and the three programs have raised about $16 billion to protect taxpayers from mortgage default losses.
“By shifting more of our potential credit losses to private investors, we've led the way in transforming how a significant portion of the U.S. housing market is funded,” said Kevin Palmer, SVP of Credit Risk Transfer (CRT), in a commentary on Freddie Mac’s website. “This further protects U.S. taxpayers from backstopping GSE credit losses and helps to build a more robust system that can keep overall mortgage rates low, while creating a more sustainable mortgage funding model.”
In the two and a half years since the STACR series began, Palmer said Freddie Mac has learned the following: private investment segments are willing to take on credit risk at reasonable prices; it is important for Freddie Mac to retain a portion of the credit risk in its CRT programs in order to align interests with investors; offering multiple types of CRT products allows options to transfer risk across a range of economic environments; and communication is critical with investors in order to share with them Freddie Mac’s quality control and loan servicing processes as well as its practices and standards.
“This further protects U.S. taxpayers from backstopping GSE credit losses and helps to build a more robust system that can keep overall mortgage rates low, while creating a more sustainable mortgage funding model.”
“While we are only a few years into what is likely to be a decade-long transformation of the mortgage credit risk transfer market, our leadership in this area will impact mortgage finance for years to come,” Palmer said.
Fannie Mae has followed its fellow GSE's lead in risk sharing with two programs of its own starting with the Connecticut Avenue Securities (CAS) series in September 2013 and the Credit Insurance Risk Transfer (CIRT) program in 2014. Through the CAS series, Fannie Mae has sold more than $12.4 billion in securities to private investors, which covers $438 billion worth of mortgage loans.