Freddie Mac has added another innovation to its suite of credit risk transfer offerings. According to a press release on Thursday, the Enterprise added its first two Agency Credit Insurance Structure (ACIS) transactions that provide coverage based on both first loss and actual losses realized on a reference pool of residential mortgages.
Freddie Mac obtained insurance policies through these ACIS transactions that move much of the remaining credit risk associated with two Structured Agency Credit Risk (STACR) debt notes executed earlier this year to a panel of insurers and reinsurers. The two new policies will cover a maximum limit of $223 million of losses that Freddie Mac incurs when homeowners default.
"The reinsurance market's response was very good for ACIS coverage expanding to both first loss and actual losses," said Kevin Palmer, VP of Freddie Mac Single-Family strategic credit costing and structuring. "We continue to improve our innovative products while supporting the nation's housing markets. We've increased private market participation and have further expanded our panel of both foreign and domestic investors. Combined with our previous ACIS transactions, we have now acquired more than $1.7 billion in additional insurance coverage since 2013."
According to Freddie Mac, they have led the market in introducing new risk-sharing initiatives with 14 STACR offerings, including first loss and actual loss risk transactions. They have also conducted nine ACIS transactions since mid-2013. Freddie Mac has laid off a substantial portion of credit risk on more than $313 billion of UPB in single-family mortgages through STACR and ACIS. They were also the first agency to market credit risk transfer transactions with STACR and ACIS and has grown its investor base to more than 160 unique investors, including many of the largest money managers in the U.S.
In a report released on Thursday by the Urban Institute (UI), authors Laurie Goodman, director of Housing Finance Policy Center at UI and Karan Kaul, a research associate at UI determined that the GSEs play an important, indisputable part in the U.S. mortgage market, but also pose a huge risk to taxpayers.
“GSE risk-transfer has made tremendous progress during the last three years, placing private capital in the first-loss position and bolstering taxpayer protection,” the authors concluded. “Risk transfer remains in its infancy, however, so we expect to see more innovations on STACR and CAS transactions, as well as more risk sharing at the point of origination to further reduce taxpayer risk. While no one knows what the longer-term future of housing finance will look like, we expect credit-risk transfer to play a critical role.”
Freddie Mac began the STACR program in the second half of 2013 as part of the Enterprise’s goal of reducing risk to taxpayers by increasing private capital’s role in the mortgage market. According to Freddie Mac, the GSE was the first agency to market credit risk transfer transactions with STACR and Agency Credit Insurance Structure and now features an investor base that includes more than 160 unique investors. The demand for STACR transactions has been growing steadily since the first one in 2013, and the recent STACR offerings were the first of their kind to sell first loss and actual loss risk, according to Freddie Mac.