Freddie Mac issued a record-high $15 billion in credit-risk transfers (CRTs) in the first half of this year, securing $358 billion in single-family mortgages. Freddie Mac also reported a record CRT issuance of $6.5 billion for the entire second quarter, safeguarding $151 billion in single-family mortgages. In addition, the agency’s flagship Structured Agency Credit Risk (STACR) and Agency Credit Insurance Structure (ACIS) programs and other risk-sharing transactions were included in the offering totals.
This year, Freddie Mac also unveiled brand-new ACIS agreement arrangements. One of them, ACIS 2022-COR1, was the first offering to use only cash-out refinance loans as collateral. Another one, ACIS 2022-AFH1, lowers the agency’s credit risk by offering insurance cover for loans purchased.
A portion of the credit risk associated with mortgages backed by Fannie and Freddie is transferred to commercial insurers through the ACIS transactions. The agencies pay monthly fees in exchange for insurance protection on a percentage of the approved reference loan pools.
Through Freddie Mac’s STACR transactions, private investors share a portion of the mortgage credit risk in the agency’s reference loan pools with the investment community. Investors get principal and interest payments on the STACR note they purchase; however, if credit losses surpass a certain level per the security issued, investors are responsible for absorbing the losses above that threshold.
A STACR tender offer aims to control Freddie Mac’s costs associated with credit-risk transfer by repurchasing STACR notes that are significantly deleveraged. The deleveraged notes result from reductions in the credit risk of related reference pools and increases in the credit enhancements to STACR securities. To read more on this, click here.
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