Freddie Mac [1] Monday announced it has reached a milestone for credit risk transfer, having transferred the risk on a total of $650 billion in unpaid principal balance [2]on mortgage loans to the private market.
Through its credit risk transfer programs, Freddie Mac has transferred a portion of credit risk of mortgage defaults on $500 billion in UPB associated with single-family loans since 2013 (as well as $150 billion in UPB on multifamily loans since 2009) to investors in the private capital market.
Freddie Mac has also significantly reduced its legacy mortgage credit risk through the securitization and/or sale of more than $50 billion in less liquid and impaired assets from its mortgage-related portfolio since that same year.
“I am grateful to Freddie Mac employees, our investors and many lending customers for helping us achieve this important milestone,” said Freddie Mac CEO Donald H. Layton. “This success is symbolic of how we have materially changed our risk management practices since the financial crisis.”
Monday’s announcement is Freddie’s first in years that concentrates on the single-family asset class.
“Freddie Mac's credit risk transfer programs have significantly changed the economics of the mortgage guarantee business,” Layton said. “As a result of our leadership, private capital is now absorbing large amounts of mortgage credit risk which was previously supported by the U.S. taxpayer.”
“As a result of our leadership, private capital is now absorbing large amounts of mortgage credit risk which was previously supported by the U.S. taxpayer.”
Donald Layton, Freddie Mac CEO
The GSE has been evolving its risk management framework and practices since it debuted its first official credit risk transfer program in 2009 with the multifamily K-Deal [3] security, it began blazing the trail in this market space. In 2013, the company created a new asset class by pioneering the transfer of credit risk on single-family mortgages when it introduced both Structured Agency Credit Risk (STACR [4]) debt notes, which are sold to bond market investors, and Agency Credit Insurance Structure (ACIS [5]), which transfers risk to insurance companies.
In addition, he said, Freddie’s growing number of investors in these transactions “enables us to disperse credit risk more widely. The result is simply a better housing finance system.”