Freddie Mac has announced a new deal that will allow it to transfer mortgage-credit risk to the private market. The government-sponsored enterprise (GSE) said the structure would reduce costs to borrowers, as it would remove some costs that normally are included in insurance prices.
The structure, Integrated Mortgage Insurance (IMAGIN), would take the place of lender-paid mortgage insurance that is put on loans when borrowers make down payments of less than 20 percent, often first-time homebuyers or low- to moderate-income borrowers. Freddie Mac estimates that for a borrower with a 5 percent down payment on a $200,000 home purchase, they would save roughly $5,600 over 10 years.
The structure would also reduce the GSE's counterparty risk by eliminating insurers' ability to question the validity of a claim when a borrower defaults. It would likely make underwriting the GSE's loans more streamlined as it eliminates the need for private mortgage insurance company approvals and certifications.
NAFCU, in its principles for housing finance reform, has supported expanding credit risk transfer transactions in order to further disperse risk among private investors.