Freddie Mac issues first multifamily risk-sharing deal using reinsurance

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Freddie Mac completed its first multifamily credit risk transfer transaction that used an insurance/reinsurance structure.

The transaction, MCIP 2018-1, covered the first 5% of credit losses for 55 loans with a balance of $915 million. The loans are in Freddie Mac's Bond Credit Enhancement and Multifamily Participation Certificate program portfolios. The average loan balance in the pool is $16.6 million.

There are five reinsurers participating in this deal, with Aon acting as the broker.

"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, in a press release. "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."

In MCIP transactions, Freddie Mac will enter into long-term credit insurance contracts that cover credit losses from multifamily loans in the company's portfolio or bonds that it guaranteed. This structure reduces Freddie Mac's need to hold capital for the underlying loans in the pool.

"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," said Victor Pa, vice president of investment and advisory for Freddie Mac Multifamily. 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.”

While this is a new structure for Freddie Mac, Fannie Mae completed two multifamily credit risk transfer deals in 2018, the second in December covering $10.9 billion of loans in its portfolio.

Freddie Mac issued $72.8 billion of multifamily securities in 2018, its best year for these transactions ever.

"With our diverse array of securities, including our flagship K Deals, we continue pioneering efforts to meet private sector demand for investment products while shifting risk away from taxpayers," said Debby Jenkins, executive vice president and head of Freddie Mac Multifamily in a separate press release. "Our broad issuance platform had another outstanding year. As we look to the future, we're going to continue pushing for more innovations that can lower capital cost for borrowers, making rental housing more affordable."

There were $61.6 billion in K Deals issued to 241 participating investors. The SB Deals (small balance multifamily) issued $7 billion to 161 investors.

The remaining $4.2 billion were issued in a variety of programs, including KT Deals, PCs, Q Deals, M Deals and ML Deals.

In 2017, Freddie Mac issued $68 billion in multifamily securities, including $56.7 billion in K Deals and $5.5 billion in SB Deals.

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Multifamily Credit risk transfers CRE CMBS GSEs Reinsurance Freddie Mac