Ahead of the Monte Carlo Rendez-Vous Freddie Mac’s vice president of single-family credit risk transfer Gina Healy spoke with Re-Insurance to discuss why the government-sponsored body is interested in talking to reinsurers.

Can you share with us Freddie Mac’s role in the US housing market?

Congress established Freddie Mac in 1970 to help support the US housing market by enabling America’s families to access mortgage loan funding with better terms. We are building a better housing finance system for the nation by improving the liquidity, stability, and affordability of the housing market in all economic conditions.

Freddie Mac’s core business model is to purchase residential mortgage loans originated by lenders under established, prudent underwriting guidelines and sell a portion of the underlying risks on these mortgages as opportunities for global investors. In doing so, we keep mortgage capital flowing via the secondary mortgage market by purchasing mortgage loans from lenders who in turn can fund more loans to qualified borrowers.

What is credit risk transfer and why did Freddie Mac establish the CRT market in the US?

Over the past five years, Freddie Mac has led the development of a robust Single-Family credit risk transfer (CRT) program, which enables us to move a portion of our credit risk off our balance sheet and into the private sector. Our CRT securitization and (re)insurance offerings, Structured Agency Credit Risk (STACR) and Agency Credit Insurance Structure (ACIS) respectively, are innovative forms of risk transfer we pioneered when introducing the market to new structures.

CRT allows Freddie Mac to better manage its portfolio risks, while offering unique ways for private investors to invest in the US mortgage market. Since the program’s inception, Freddie Mac has transferred a portion of the credit risk on over $1tn of single-family mortgages by issuing more than $38bn in securities and (re)insurance contracts. This has significantly reduced US taxpayers’ exposure to the risks associated with Freddie Mac purchasing and securitizing mortgages.

What should (re)insurers know about Freddie Mac’s (re)insurance program, ACIS?

ACIS is Freddie Mac’s programmatic CRT offering for the global (re)insurance industry. It accesses institution-based capital to support the mortgage credit market and helps develop CRT as a sustainable source of capital over the long term. ACIS provides Freddie Mac with the flexibility to execute CRT on a range of collateral types and structures, including front-end risk transfer, which simultaneously provides coverage on loans as they come into the portfolio and accesses committed capital with stable pricing. All mortgages in ACIS benefit from Freddie Mac’s credit risk management framework to maximize loan quality, data transparency, and promote loan-manufacturing quality.

What is the track record for ACIS?

To date, the ACIS programs have completed 38 transactions covering over $10bn in limit. This year, Freddie Mac hit an important milestone in credit risk transfer when our total CRT covered loans surpassed the $1tn mark.

What is Freddie Mac’s new programme IMAGIN?

Freddie Mac is continuously developing new programmes to support low-down payment lending and creating innovative structures to help qualified first-time homebuyers with expanded access to credit.

Integrated Mortgage Insurance (IMAGIN) is open to (re)insurers that meet Freddie Mac’s stringent counterparty standards, which include capital and collateralization requirements. IMAGIN is not a replacement for traditional mortgage insurance; it is an alternative to the traditional system that may result in lower mortgage insurance premiums and thus lowered costs for borrowers.

What are the benefits of IMAGIN and how does it compare to traditional mortgage insurance?

IMAGIN levels the playing field for all lenders and expands access to credit for first-time homebuyers, which may help reduce mortgage costs.

It also reduces risk to Freddie Mac, taxpayers and the broader housing finance system through adding diverse sources of private capital to low down payment lending.