Freddie Mac announced on Monday, September 26, that it would launch a new program to help reduce the risk it takes on various mortgages. The program will transfer backing to several private mortgage insurance companies. The loans included in this pilot program are those that were acquired by Freddie Mac starting September 1, 2016, and ending February 28, 2017. These loans must meet specific criteria to be shared among the private mortgage insurers (PMI).
The program aims to share $100 million of financial backing on mortgages worth almost $4 billion. This amount is less than what many PMI companies had expected. Since discussion of the program, many PMI executives petitioned the Federal Housing Finance Agency (FHFA) to allow them to assume more of the risk. The FHFA, which oversees Freddie Mac, decided to hold back on sharing more of the risk.
Many PMI companies may be hesitant after seeing the structure of these deals. The FHFA requires any private company to provide extra collateral to join this program, and Freddie Mac will decide which insurers can be a part of the risk-sharing.
Senior Vice President of Credit Risk Transfer Kevin Palmer said that four different insurers are a part of the program at the moment, although he would not provide their names.
A similar program is currently being prepared for Fannie Mae.
This article was provided by our partners at moneytips.com.