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.
According to sources speaking to Bloomberg, an agreement has been reached between Wells Fargo Bank and the Federal Housing Finance Agency (FHFA) to resolve claims that the bank sold faulty mortgage bonds to Fannie Mae and Freddie Mac. The amount of the settlement has not been disclosed but is reported to be less than $1 billion. Bloomberg said the settlement was subject to a confidentiality agreement and thus the source of their story asked not to be named.
Dow Jones Business News said that FHFA had filed 18 lawsuits in 2011 against a number of large financial institutions over $200 billion in mortgage securities sold to the GSEs but never filed suit against Wells Fargo. The parties instead reached an agreement which extended the statute of limitations beyond September 2011 in the event the parties could not reach a settlement.
The FHFA settlement is apparent independent of one Wells Fargo reached with Freddie Mac in October for $780 million. Last spring the bank stated in an SEC filing that it had settled Fannie Mae’s claims over mortgage bonds and stated that the unspecified amount was covered by its reserves. Dow Jones said the bank will likely disclose the terms if not the amount of this settlement in the same manner.
Spokespersons for both Wells Fargo and FHFA refused comment on the story.