Freddie Mac has signed a risk sharing agreement with Arch Reinsurance Ltd. Which will cover up to $77.4 million in possible credit losses from a pool of single family loans. The agreement is similar to one announced last month between Fannie Mae and National Mortgage Insurance Corporation to cover $5.0 billion in risk.
This new insurance coverage is another initiative by Freddie Mac to meet a strategic goal set for it and Fannie Mae (the GSEs) to transfer at least $30 billion of its single-family mortgage risk to private sources of capital. The Freddie Mac/Arch contract involves a portion of the credit risk of loans funded in the third quarter of 2012.
“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.”
Freddie Mac has sought to further meet the strategic goals, set for the GSEs by the Federal Housing Finance Agency (FHFA) with two STACR debt offerings, the first of which closed in July and the second of which was priced last week.