Freddie Mac’s Single-Family Credit Risk Transfer (CRT) programs are designed to distribute a portion of Freddie Mac’s mortgage credit risk to third-party participants. The industry-leading and award-winning programs attract capital markets institutional investors and (re)insurance companies worldwide.
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The Case for CRT
Freddie Mac introduced the first GSE CRT program in 2013 in response to the 2008 financial crisis. CRT has not only evolved into a viable asset class for participants, it has become a part of Freddie Mac’s normal business activities, fulfilling the corporate objective to transfer credit risk exposure on loans that Freddie Mac owns or guarantees away from U.S. taxpayers. CRT has proven to be a successful component of the Freddie Mac risk management toolkit, including during times of economic stress.
Lenders originate loans to borrowers according to Freddie Mac origination guidelines, and Freddie Mac purchases such loans.
Loans purchased by Freddie Mac are grouped and sold to Uniform Mortgage Backed Securities (UMBS) investors, transferring interest rate risk away from Freddie Mac.
Loans backing the guaranteed securities (UMBS) are subject to additional CRT eligibility requirements and screened for underwriting defects and performance deficiencies before being included in a reference pool of a CRT transaction.
Transactions consist of classes of securities representing specific tranches of credit risk exposure. Freddie Mac maintains “skin in the game” by retaining at least 5% of each tranche, thus aligning the interests of Freddie Mac and participants with respect to reference pool performance.
The Three Spokes of CRT
Freddie Mac CRT comprises three distinct spokes of risk sharing.
Freddie Mac’s primary single-family securities-based credit risk sharing vehicle transfers credit risk to private capital through the issuance of unguaranteed notes using a third-party trust.
Freddie Mac’s primary insurance-based credit risk sharing vehicle uses insurance policies with global (re)insurance companies to cover a portion of credit risk on specific reference pools.
Freddie Mac CRT Program Evolution
Freddie Mac’s flagship STACR® (Structured Agency Credit Risk) and ACIS® (Agency Credit Insurance Structure®) programs have evolved significantly through their eight-year history. View the milestones.
Credit Risk Management Framework
While CRT is a core component of Freddie Mac credit risk management, CRT participants also benefit from the disciplined framework.
Single-Family Seller/Servicer Guide
Loans eligible for purchase by Freddie Mac must meet the origination and underwriting standards of the Single-Family Seller/Servicer Guide. Underwriting standards set forth, among other things, loan eligibility, documentation requirements and seller representations and warranties.
Loan Product Advisor®
Freddie Mac Loan Advisor® is a set of integrated software applications and services designed to give lenders access to Freddie Mac’s view of risk, loan quality and eligibility during the origination process. As a key component of Loan Advisor, Loan Product Advisor takes advantage of proprietary data models and intelligent automation to help validate that loans meet Freddie Mac underwriting standards.
Loans purchased by Freddie Mac are subject to a strict quality control (QC) process. Robust seller/servicer management, including access to reference guides, tools and technology, is an essential component of QC.
Freddie Mac continuously collaborates with servicers to deliver the best results for borrowers. When borrowers remain responsible, sustainable homeowners, investors benefit.
The goal of the CRT handbook is to familiarize the private sector with Freddie Mac’s complementary capital markets and (re)insurance CRT executions, STACR® and ACIS®, as well Freddie Mac’s credit risk management framework.
The purpose of the PMI handbook is to illustrate how Freddie Mac’s relationship with approved mortgage insurers enables the purchase of mortgages with loan-to-value (LTV) ratios greater than 80% while reducing loss exposure.