The Federal Home Loan Mortgage Corporation (Freddie Mac) has closed the first deal under its newly-created Multifamily Credit Insurance Pool (MCIP), which provides reinsurance coverage for $915 million of multifamily mortgage loans.
The U.S government-sponsored mortgage giant aims to use its new MCIP offering to transfer a percentage of the credit risk from multifamily loans to reinsurers, thereby reducing its need to hold capital for the underlying loans in the pool.
“This offering introduces a new form of credit risk transfer on Freddie Mac’s Multifamily loans,” explained Victor Pa, Vice President of Investments & Advisory for Freddie Mac Multifamily.
“Through long-term insurance contracts we can help alleviate pricing volatility and reduce execution uncertainties, allowing us to broaden our production capabilities on various types of loans that may be structurally more complicated or need longer time to aggregate,” Pa continued
“The bottom line is that we will be able to better manage risk and provide more liquidity for affordable rental housing, helping fulfill our mission.”
Freddie Mac partnered with reinsurance broker Aon to complete its first transaction through the offering, titled MCIP 2018-1, providing credit risk reinsurance for the first 5% of credit losses on a reference pool of $915 million.
A total of five reinsurance companies participated in this transaction, which relates to 55 loans in Freddie Mac’s Bond Credit Enhancement and Multifamily Participation Certificate program portfolios.
The average loan balance in the pool is $16.6 million, and most of the 55 properties in the pool include rent-restricted units that range from affordable to very low-income families.
“This transaction is the first of many we hope to bring forward through the Multifamily Credit Insurance Pool initiative,” said Robert Koontz, Senior Vice President of Multifamily Capital Markets.
“This is yet another great credit risk transfer offering that complements and completes our existing suites of capital market executions,” he added. “We have successfully delivered similar reinsurance offerings through our single-family business, and now we’re finding similar efficiencies on the Multifamily side.”
Freddie Mac retained its position as an industry leader in transferring multifamily risk last year, issuing $72.8 billion of multifamily securities in 2018.
The securitisation program aims to move the vast majority of risk away from Freddie Mac and taxpayers to private investors. The company transferred around 86% of its multifamily credit risk over the first half of 2018.
“With another record-setting year, Freddie Mac continues to set the pace for the industry when it comes to securitization,” Koontz continued. “The volume totals speak for themselves. After nearly a decade of K Series transactions and years of experience with several other well-tested offerings, we continue to lead the industry in product innovation and risk transfer.”
