Housing Market

Freddie Mac obtains new credit risk insurance policies to prevent losses

Freddie MacFreddie Mac said last week that it has taken out insurance policies to cover up to approximately $270 million of losses for part of the credit risk associated with single-family loans, thereby reducing taxpayer exposure to mortgage losses.

Underwritten by a group of “well-capitalized and established insurers and reinsurers,” the policies were obtained through Freddie Mac’s agency credit insurance structure (ACIS).

“We have a good start on our goal to provide multiple avenues for sharing mortgage credit risk with a diverse spectrum of private investors,” Kevin Palmer, the vice president of single-family strategic credit costing and structuring for Freddie Mac, said. “Global reinsurers represent a large source of capital, and they are interested in expanding their product line to cover Single-Family mortgages. This year, we expect to execute multiple insurance transactions and bring in additional insurance and reinsurance companies.”

Earlier this month Freddie Mac joined Aon Benfield as a co-host of a reinsurer industry day, which drew representatives from 13 foreign and U.S.-based reinsurance firms.

“Transferring some of our Single-Family risk to large, diversified global insurance and reinsurance companies help us to better manage our risk,” Palmer said.

The mortgage giant has introduced several new risk-sharing initiatives, including four STACR debt note offerings and two ACIS transactions related to three policies. The first ACIS took place in November and covered up to $77 million in losses. Freddie Mac said its STACR and ACIS initiatives have reduced risk on more than $95 billion in single-family loans.

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