Freddie Mac Closes First MCIP Transaction
January 4, 2019
Freddie Mac has closed its first transaction issued under its newly created Multifamily Credit Insurance Pool (MCIP).
Under this multifamily credit risk transfer offering, Freddie Mac participates in long-term credit insurance contracts covering credit losses from either existing multifamily loans within its portfolio or in the bonds guaranteed by the government-sponsored enterprise. According to Freddie Mac, the structure transfers a percentage of credit risk to reinsurers, thus reducing Freddie Mac’s need to hold capital for the underlying loans in the pool.
The first transaction through the offering, MCIP 2018-1, was created in partnership with the reinsurance broker Aon. Freddie Mac purchased credit risk insurance for the first 5 percent of credit losses on a reference pool of $915 million, which consisted of 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 are affordable to low- and very low-income families. Five reinsurers participated in the transaction.
“This offering introduces a new form of credit risk transfer on Freddie Mac’s Multifamily loans,” said 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. 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.”
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