US-based mortgage loan company Freddie Mac has announced first multifamily credit risk transfer offering using (Re)insurance.
Freddie Mac created a multifamily credit insurance pool (MCIP) offering and the closing of the first transaction under that offering.
The company has offered and closed the first transaction under the MCIP offering with $915m. In MCIP transactions, the company enters into long-term credit insurance contracts that cover credit losses from existing multifamily loans in its portfolio or bonds that it fully guarantees.
MCIP has been structured to transfer a percentage of credit risk to reinsurers and it helps in reducing the company’s need to hold capital for the underlying loans in the pool.
Freddie Mac announced the first transaction through its MCIP 2018-1 offering. It partnered with reinsurance broker Aon and purchased credit risk insurance for the first 5 percent of credit losses on a reference pool of $915m. This pool includes 55 loans in Freddie Mac’s Bond Credit Enhancement and Multifamily Participation Certificate program portfolios.
The average loan balance in the pool is $16.6m and most of the 55 properties in the pool include rent-restricted units that are affordable to low- and very low-income families. A total of five reinsurers participated in this transaction.
Freddie Mac multifamily investments & advisory vice president Victor Pa said: “This offering introduces a new form of credit risk transfer on Freddie Mac’s Multifamily loans. 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.
“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.”
Multifamily Capital Markets senior vice president Robert Koontz said: “This transaction is the first of many we hope to bring forward through the Multifamily Credit Insurance Pool initiative. This is yet another great credit risk transfer offering that complements and completes our existing suites of capital market executions.
“We have successfully delivered similar reinsurance offerings through our single-family business, and now we’re finding similar efficiencies on the Multifamily side.”
The company recently announced that it has issued $72.8bn in multifamily securities last year. It had settled $61.6bn in K Deals, $7bn in SB Deals, $4.2bn in KT Deals, PCs, Q Deals, M Deals, and ML Deals.