US loan mortgage corporation, Freddie Mac, has announced the closure of its third Multifamily Credit Insurance Pool offering.
The transaction reinsures risk on a $2.6 billion reference pool made up of 136 multifamily loans.
Partnering with insurance and reinsurance broker Aon, Freddie Mac retains the first 1% of losses, and has purchased credit risk insurance for the next 5.5% of credit losses on the reference pool which consists of conventional and affordable loans in its Multifamily Participation Certificate program.
In these transactions, the government-sponsored entity (GSE) enters into long-term credit insurance contracts whereby a portion of any credit losses that occurs from existing multifamily loans in the company’s portfolio or bonds that it fully guarantees, is covered by reinsurance firms.
By transferring a percentage of credit risk to reinsurers, Freddie Mac reduces its need to hold capital for the underlying loans in the pool.
