Freddie Mac closes $2.6bn MCIP reinsurance deal

Freddie Mac, the US government-sponsored enterprise (GSE) that provides liquidity to the US mortgage markets by buying mortgages from lenders, has completed a $2.6 billion credit risk transfer deal.

The transaction is its third Multifamily Credit Insurance Pool (MCIP) offering, reinsuring risk on a $2.6 billion reference pool made up of 136 multifamily loans.

Partnering with reinsurance broker Aon, Freddie Mac retains the first 1.00 percent of losses, and has purchased credit risk insurance for the next 5.5 percent of credit losses on the reference pool which consists of conventional and affordable loans in Freddie Mac’s Multifamily Participation Certificate programme.

In MCIP transactions, Freddie Mac 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 Freddie Mac fully guarantees is covered by reinsurers. By transferring a percentage of credit risk to reinsurers, Freddie Mac reduces its need to hold capital for the underlying loans in the pool.