[1]Freddie Mac [2] announced Tuesday that it has obtained a number of insurance policies [3] under its Agency Credit Insurance Structure (ACIS [4]) in an effort to reduce risk to taxpayers in mortgage loans and further expand risk-sharing initiatives beyond capital markets.
The announcement comes one week after Fannie Mae announced [5] it was expanding the role of private capital in the mortgage market by transferring the credit risk on a pool of loans from taxpayers to a panel of domestic reinsurers.
Freddie Mac's newly-obtained insurance policies, which are underwritten by a panel of insurers and reinsurers, will cover up to approximately $155 million in losses for a portion of the credit risk associated with a pool of single-family loans acquired in the third quarter of 2013.
The acquisition of the insurance policies is part of Freddie Mac's ongoing market-leading effort to introduce new risk-sharing initiatives. Since mid-2013, Freddie Mac has introduced four ACIS transactions and nine Structured Agency Credit Risk (STACR [6]) debt note offerings. Freddie Mac has laid off a substantial portion of credit risk for more than $205 billion in unpaid balances on single-family mortgages through these transactions.
"This transaction is backed by a mix of new and returning participants," said Kevin Palmer, vice president of Freddie Mac's Single-Family strategic credit costing and structuring. "These policies further demonstrate Freddie Mac's business strategy to expand risk sharing with private firms to reduce taxpayers' exposure to mortgage losses. ACIS demonstrates an alternative to risk transfer outside of the capital markets that we believe will be a meaningful part of our future risk transfer strategy. ACIS transfers a portion of the remaining credit risk associated with STACR reference pools to a diversified set of insurance and reinsurance companies around the globe, some of which are among the largest and best-capitalized in the industry."
Freddie Mac and Fannie Mae were taken under conservatorship of the federal government in September 2008, and both received a combined total of $188 billion in bailout money from taxpayers. Both have since returned to profitability. The Federal Housing Finance Administration (FHFA [7]), conservator for both GSEs, has drawn some criticism for its recent announcement [8] that it was lowering the required down payment for a mortgage loan to 3 percent for qualified first-time homebuyers, with critics citing the amount of risk involved for taxpayers.