June 30, 2016

3 Benefits of Credit Risk Transfer

Many Returns of the Day, USDA!

With the execution of our largest aggregate transaction to date, today we reached a $5 billion issuance milestone for our Agency Credit Insurance Structure (ACIS) program. Through ACIS, we obtain insurance policies that transfers a portion of mortgage credit risk to insurance and reinsurance companies worldwide.

Credit risk transfer is changing the way a significant portion of the U.S. single-family housing market is funded.  It has 3 main benefits:

  1. Shifts credit risk away from taxpayers. This is clearly the biggest benefit. In the past, Freddie Mac transferred the interest rate risk but retained the credit risk associated with the mortgages we purchased. Today, we're transferring a substantial portion of the mortgage credit risk to private investors.  Since we started our program in 2013, we have raised more than $20 billion of loss protection for taxpayers against future single-family residential mortgage defaults.

  2. Creates new opportunities for investors. Our growing and evolving credit risk transfer program enables us to reach an expanding and diverse investor base, many of which have not historically invested in agency single-family mortgage credit risk. We now have more than 200 unique investors, including money managers, alternate investment funds, insurance and reinsurance companies and real estate investment trusts (REITs). A bigger pool of investors also means we are able to disperse risk more widely.

  3. Strengthens the mortgage market. In addition to shielding taxpayers from losses, our strong risk management approach underlying this evolving funding model also helps to build a more robust system that can keep overall mortgage rates low for America's borrowers and lower costs for investors. In addition, its more flexible and better able to weather dynamic market and economic conditions.

Our leadership and innovation in this area continues to win industry awards, and we recently celebrated a $500 billion issuance milestone for our single-family credit risk program. Want to learn how it works? Check out our video and infographic.

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