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Freddie Mac receives largest-ever insurance policy

Freddie Mac recently received its largest insurance policy ever.

In a recent press release, Freddie Mac revealed that it has acquired an insurance policy worth more than half a billion dollars, making it the largest insurance policy the corporation has ever received. This policy brings the total insurance coverage Freddie Mac has obtained this year to about $2.2 billion.

It was only about a month ago that Freddie Mac received its previous “largest insurance policy ever,” which also reached over half a billion dollars and transferred a substantial amount of risk to the mortgage investor (insurance and reinsurance companies) to account for Freddie Mac’s second Structured Agency Credit Risk offering that deals in actual losses. The newest insurance policy exists to reallocate risks associated with the fourth STACR® offering to deal in actual loss.

“The policy transfers the risk of up to $702.4 million in losses.”

Ins and outs of the new policy

The policy is part of Freddie Mac’s Agency Credit Insurance Structure, which its website explained is a way to allow some of the risk related to certain loans to be taken on by private investors. Freddie Mac describes ACIS® as an “insurance-based risk sharing vehicle” that allows it to reallocate the risk of loss that accompanies its residential mortgage loans.

Housing Wire said this new policy will cover a substantial amount of credit risk related to an STACR® offering that Freddie Mac announced in October that appropriates loss based on actual losses. This marked the introduction of Freddie Mac’s fourth offering that deals in actual losses and its seventh in 2015 alone that contains over $1 billion in debt notes.

The latest insurance policy will cover the risk associated with this new STACR® offering. The press release stated that the policy, which deals with a pool of Single-Family loans provided between December 2014 and March 2015, transfers the risk of up to $702.4 million in losses.

What does this mean for the market?

Senior Vice President of Credit Risk Transfer for Freddie Mac Kevin Palmer believes this policy indicates the overall health and strength of the Freddie Mac ACIS® program. He explained in the press release that it has brought the total reallocation of risk since the program began to about $3 billion. Palmer also celebrated the ACIS® program’s “continuously growing panel of participants and the first time that ACIS and STACR were issued in the same month. These accomplishments,” he continued, “highlight the maturity of the program and strong interest by repeat and new reinsurers.”

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