I enjoy woodworking and recently made a bookcase for my daughter's bedroom using multiple tools, including a saw, drill and screws. Without these different tools, it would have been almost impossible to build. In a similar fashion, we take a multiple-tool approach to the way we transfer single-family credit risk at Freddie Mac.
Our bigger, better credit risk transfer toolbox is helping us transfer credit risk away from taxpayers to the private market, and provides us with more flexibility to weather dynamic market and economic conditions. These tools also help us reach a diverse investor base, while reducing credit costs.
Historically we have held the vast majority of credit risk on the single-family mortgages we acquired or guaranteed. Only loans with loan-to-value ratios (LTVs) above 80 percent were required to have a portion of risk transferred, and the tool primarily used was mortgage insurance (MI). MI continues to be an important means for transferring credit risk, accounting today for roughly 30 percent of our total risk transferred. Moreover, we go beyond the MI levels required in our charter, using deeper levels depending on LTV. However, over the past three years we have further expanded our credit risk transfer capabilities through the creation of Structured Agency Credit Risk® (STACR), Agency Credit Insurance Structure® (ACIS), Freddie Whole Loan SecuritiesSM (WLS) and seller indemnification.
This has allowed us to bring multiple types of investors to the market that historically have not invested in agency single-family mortgage credit risk. Our STACR investors include money managers, alternative investment funds, insurance companies and REITs. Our ACIS credit risk transfer tool targets investors that represent multi-line insurance and reinsurance companies, while WLS qualifies as a REIT investment with the corresponding tax advantages and has a much higher concentration of REIT investors. A bigger pool of investors means we are able to disperse credit risk more widely to investors.
With the flexibility and diversification made possible by multiple tools, we can lower our risk transfer costs. For example, credit spreads widened late last year and earlier this year when the equity markets dropped by more than 10 percent due to concerns about China and the Middle East, which made it expensive to transfer credit risk in the STACR market. Some STACR investors expressed concern about issuing a large volume of securities during a weak market. In response, we quickly adjusted the mix between STACR and ACIS offerings. In our earlier transactions, 80 percent of the risk was transferred through STACR and 15 percent through ACIS. With credit spreads widening, we had the flexibility to adjust the mix to roughly 55 percent STACR and 40 percent ACIS.
We couldn't have built a bookcase with only a drill or established a credit risk transfer program on a multi-trillion dollar market with a single tool to transfer a meaningful amount of risk on a $1.7 trillion portfolio. By creating multiple credit risk transfer tools, we have increased our options for transferring credit risk and reaching a deep and broad market for reducing our exposure to mortgage losses, which reduces taxpayer risk. This helps create a better Freddie Mac and a better housing finance system.
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