Credit risk

Freddie Mac’s credit risk transfers set records for the second quarter of the first half

Freddie Mac announced on Tuesday that its single-family credit risk transfer business set records for the second quarter and first half.

The government-sponsored firm issued about $6.5 billion between April and June, mitigating risk on mortgages with a total outstanding principal balance of about $151 million. That brought the first-half total to $15 billion in issuance, mitigating risk on $358 billion in lending.

The record numbers, which include transactions in agency structured credit risk and agency credit insurance structure, show that Freddie’s volume was strong in the first half of the year despite market volatility which, at one point, delayed a CRT deal of competitor Fannie Mae.

“Freddie Mac’s single-family CRT program has delivered record performance,” Mike Reynolds, vice president of the company, said in a press release.

The volume of single-family CRTs at Freddie has been in tears since the start of the pandemic. Based on the outstanding loan principal balance in benchmark pools, it more than doubled in 2020 and nearly doubled in 2021, according to the Federal Housing Finance Agency.

However, the single-family CRT may slow in the second half of this year.

“We expect Q3 and Q4 numbers to decline,” Reynolds said in a recent webcast.

In addition to seeing strong issuance this year, Freddie Mac has also introduced some innovations in the agency credit insurance structure to the market.

One transaction used only cash refinance loans as collateral. Another accelerated the placement of loans into the structure based on a proxy pool of securitized mortgages. This allowed Freddie to protect the loans involved in the transaction at the time of purchase.

Freddie also bid and had bids accepted for STACR tickets with a total initial balance of over $4.5 billion in the first half.

“The Notes Offered had significantly deleveraged and therefore no longer provided Freddie Mac with capital relief,” the GSE said.

Capital rules have played a key role in driving CRT activity in recent years. Fannie Mae previously pulled out of the market due to an earlier version of these that would have been particularly onerous for CRT. This created a void that Freddie worked to fill until his regulator reported that this would relax the rules. Fannie went back to the market a little after.