Freddie Mac offloads more risk

by Ryan Smith13 Nov 2013

Freddie Mac has offloaded more of its risk to private capital, obtaining insurance to cover up to $77.4 million in credit losses for risk associated with some single-family loans.

Freddie hopes the insurance, provided by Arch Reinsurance Ltd., will attract new sources of private capital interested in assuming some of the credit risk on the company’s high-quality mortgage portfolio.

“This is part of our business strategy to expand risk-sharing with private firms, thus reducing taxpayers' exposure to losses from mortgage foreclosures,” said David Lowman, executive vice president of single-family business for Freddie Mac. “We have brought to the market new sources of capital for transferring mortgage credit risk away from taxpayers. We've tapped into the global insurance community's appetite for U.S. mortgage credit exposure, and would like to do more of these policies in the future.”

The venture is the latest in a series of risk-sharing moves by Fannie and Freddie as the companies move to limit taxpayer exposure to the vicissitudes of the mortgage market.

“The completion of this deal is unique in that it is with a diversified non-mortgage insurer and it demonstrates yet another approach to risk-sharing with investors,” said Edward DeMarco, acting head of the Federal Housing Finance Authority, which oversees Fannie and Freddie. “The transaction supports FHFA’s 2013 Conservatorship Scorecard and FHFA’s Strategic Plan for the Enterprise Conservatorships, reducing Freddie Mac’s market footprint and ultimately protecting taxpayers.”

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