Freddie Mac
Introduction
Since the financial crisis, credit risk associated with U.S. residential mortgages has been a major concern — both for the taxpayers (given the role of federally backed enterprises) and for the stability of the housing-finance system. Freddie Mac has taken an important role in this area by transferring some of its mortgage-credit risk from taxpayers (via its guarantee exposure) to private-sector investors and reinsurers through its CRT programmes.
On 23 October 2025, the blog “Credit Risk Transfers” published a post titled “freddie mac credit risk transfer”. creditrisktransfers.com While the blog post itself is short and high‐level, it provides a useful starting point for a deeper dive into how Freddie Mac’s CRT programme works, its evolution, its benefits and risks, and what it means for investors, taxpayers and the housing market.
What is Credit Risk Transfer (CRT) in the Freddie Mac context?
In simple terms, a credit‐risk‐transfer (CRT) transaction is when Freddie Mac (and its peer in the space) shifts part of the mortgage‐credit risk it retains (as guarantor of mortgage-backed securities) over to external parties. In doing so, the aim is to reduce the exposure of taxpayers and the enterprise itself to mortgage losses.
According to Freddie Mac’s own materials:
“Freddie Mac’s Single-Family Credit Risk Transfer (CRT) programmes are designed to distribute a portion of Freddie Mac’s mortgage credit risk to third-party participants.” capitalmarkets.freddiemac.com+2capitalmarkets.freddiemac.com+2
Freddie Mac states that it “pioneered” the agency GSE (government-sponsored enterprise) CRT market in 2013. capitalmarkets.freddiemac.com+1
The blog post also situates CRT in this broad sense of transferring credit exposure via securitisation, guarantees or insurance structures. creditrisktransfers.com
Why does Freddie Mac use CRT? What are the purposes?
There are several key rationales behind Freddie Mac’s CRT activities:
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Taxpayer Risk Mitigation – Because Freddie Mac is under the oversight of the Federal Housing Finance Agency (FHFA) and its activities have federal guarantee/back-stop implications, shifting credit risk to private investors reduces the risk borne by taxpayers in case of losses. For example, the FHFA’s “Credit Risk Transfer Progress Report” notes that the GSEs started these programmes in 2013 to reduce their overall risk and therefore the risk they pose to taxpayers. FHFA.gov
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Stability / Capacity for Lending – By transferring risk, the enterprise can better absorb new mortgage originations, support liquidity in the mortgage market, and maintain its mission of promoting access to affordable housing. The handbook states:
“We pioneered agency Single-Family CRT to reduce credit risk to U.S. taxpayers, while supporting the liquidity, stability and affordability of the country’s housing finance system.” capitalmarkets.freddiemac.com
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Private-Investor Participation and Market Development – CRT structures create opportunities for institutional investors, reinsurers and capital-markets participants to take on mortgage‐credit risk, thereby broadening risk-sharing and potentially improving pricing, risk modelling and capital formation. milliman.com+1
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Capital / Risk Management Efficiency – From a financial-management perspective, transferring risk enables Freddie Mac to manage its portfolio of mortgage exposures (underwriting, loss expectations, default scenarios) more efficiently, align incentives (for originators, servicers, investors) and facilitate new risk-sharing structures. For example, the handbook lists Freddie Mac’s risk-management framework (underwriting standards, quality control, servicer management) as a core support for its CRT programme. capitalmarkets.freddiemac.com+1
How does Freddie Mac’s CRT programme work — key structures and mechanics
Freddie Mac’s CRT programme is multifaceted, with several different “spokes” or vehicles through which risk is transferred. Its single-family (SF) mortgage business is the most visible. Some of the important structural components:
a) Eligible loans and reference pools
Loans eligible for CRT are single-family residential mortgages purchased by Freddie Mac; these loans are then subject to additional eligibility for inclusion in CRT reference pools (e.g., underwriting/loan‐quality screening). capitalmarkets.freddiemac.com+1 The reference pool becomes the basis for measuring credit losses and allocating them to investors or reinsurers via CRT structures.
b) Two principal vehicles: STACR® and ACIS®
Freddie Mac designates two flagship vehicles:
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STACR® (Structured Agency Credit Risk): This is Freddie Mac’s primary securities-based credit risk sharing vehicle, via issuance of unguaranteed notes that reference mortgage pools. capitalmarkets.freddiemac.com+1
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ACIS® (Agency Credit Insurance Structure): This is Freddie Mac’s primary insurance/reinsurance-based vehicle, where (re)insurance companies provide coverage for a portion of the credit losses on reference pools. Freddie Mac pays premiums to such reinsurers. capitalmarkets.freddiemac.com+1
Freddie Mac describes the “three spokes” of its CRT programme as: securities (STACR), (re)insurance (ACIS) and mortgage insurance/credit enhancement. capitalmarkets.freddiemac.com
c) Tranching, attach/detach points, risk retention
CRT transactions are structured in tranches: losses on a reference pool are first absorbed by Freddie Mac (or a retained slice), then by investor/tranche participants, up to a defined detach point. For example, an attach point of 0% means losses start being allocated from day one to the investor tranche. Earlier documentation by the FHFA showed that Freddie Mac’s STACR deals began to attach at zero per cent, meaning they transferred portions of expected loss to investors. FHFA.gov+1
Freddie Mac also retains some “skin in the game” — i.e., retains at least some portion (such as 5 %) of each tranche to align incentives. capitalmarkets.freddiemac.com+1
d) Loss allocation and investor cash flows
In a typical CRT transaction, the reference pool of mortgages is defined. The credit losses on that pool (after borrower equity, mortgage insurance, etc) are allocated to Freddie Mac and to CRT investors according to the tranche structure. Investors receive premiums (or yield) for bearing this risk. Freddie Mac’s guarantee of interest/principal for its MBS remains intact; the credit risk transfer deals work in parallel. For example, the MSCI CRT Models paper explains that STACR deals do not transfer the underlying mortgages but rather transfer the risk via a synthetic/structured note whose performance tracks losses in the reference pool. msci.com+1
e) Disclosure, data and transparency
Freddie Mac publishes loan-level data, performance data and publicly discloses its CRT transactions (including investor presentations, calendars, etc). For example, the CRT Handbook states that Freddie Mac offers monthly loan-level data for STACR and ACIS transactions. capitalmarkets.freddiemac.com
Evolution & scale of the CRT programme
Freddie Mac’s CRT programme has grown in scope and sophistication since its launch in 2013.
Some key historical milestones (from Freddie Mac’s website) include:
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2013: First STACR and ACIS fixed-severity transactions. capitalmarkets.freddiemac.com+1
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2014: Introduced high-loan-to-value (LTV) pools (e.g., >80 % LTV). capitalmarkets.freddiemac.com+1
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2015: Began transferring actual losses rather than fixed‐severity deals. capitalmarkets.freddiemac.com+1
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2016 onwards: Expansion into longer-term deals (e.g., 15-year), seasoned B-2 notes, REMIC forms, SOFR-based deals, etc. capitalmarkets.freddiemac.com+1
On scale: According to the handbook, as of July 2025, Freddie Mac had transferred over $115+ billion in credit risk to private capital on single-family mortgages and over $3.5+ trillion in mortgage balances with credit risk protection. capitalmarkets.freddiemac.com The FHFA’s 2023 progress report notes that between 2013 and end-2023, the GSEs (Freddie Mac and its peer) transferred risk on about $6.7 trillion of unpaid principal balance (UPB) with a combined “risk in force” (RIF) of $210 billion (≈ 3.2 % of UPB). FHFA.gov
Thus, the programme has matured into a significant part of Freddie Mac’s capital and risk-management structure.
Benefits & Implications
For Freddie Mac and the housing system
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Risk reduction: By shifting credit exposure, Freddie Mac reduces the size of potential losses it must absorb (and which taxpayers might bear) in severe housing downturns.
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Capacity: With risk transferred, Freddie Mac can maintain or expand its mortgage purchase/guarantee business without proportionally increasing retained risk.
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Market discipline & transparency: The CRT programme forces more rigorous underwriting and monitoring: because losses are shared with investors, the enterprise has added incentives for quality control.
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Investor diversification: Participation by reinsurers, hedge funds, asset managers brings new capital to the mortgage‐credit market, potentially improving risk pricing and smoothing credit cycles.
For investors
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Access to mortgage-credit risk: Institutional investors can gain exposure to U.S. mortgage credit risk via CRT securities (STACR, ACIS, etc) without owning underlying mortgages or MBS.
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Yield and risk diversification: CRT tranches may offer risk/return profiles distinct from plain vanilla MBS or corporate bonds—although with idiosyncratic risks.
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Data transparency: Freddie Mac’s disclosure regime allows investors to analyse loan-level pools and performance history (a relative novelty).
For taxpayers and regulators
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Reduced taxpayer back-stop: The structure reduces the concentration of risk in the federal guarantee system, aligning with regulatory goals (e.g., the FHFA’s objective of reducing GSE risk exposure). FHFA.gov+1
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Market innovation and capacity: A well-functioning CRT market may strengthen resilience in the housing‐finance system through risk sharing.
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Standard-setting: Freddie Mac’s programme sets precedents for disclosure, structuring, risk retention and investor participation, which may influence other risk-sharing programmes.
Risks, Challenges & Criticisms
No risk-transfer programme is without its own challenges. Some of the key caveats:
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Model and basis risk: The estimation of loss distributions, house-price stress, default correlations and recovery rates is inherently uncertain. If actual losses exceed assumptions, both Freddie Mac and investors may suffer. The FHFA overview notes the importance of measuring the extent of risk transfer and the underlying risk models. FHFA.gov
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Investor appetite / liquidity risk: CRT is a relatively specialised asset class; in times of market stress or housing downturn, investor capacity or willingness may shrink. The 2015 FHFA paper warned that CRT remains unproven across a full housing cycle. FHFA.gov
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Counterparty and legal enforceability: Especially in reinsurance/insurance-based transactions, the strength and stability of (re)insurers, collateral provisions, and legal structure matter. ■ For synthetic securities, the counterparty risk may include the enterprise itself if guarantees apply.
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Complexity and transparency: Although Freddie Mac discloses loan-level data, the CRT structures (attach/detach points, tranching, actual losses vs expected losses) can be complex and less standardised than vanilla securities. Some investor buyers may struggle to fully assess tail risk.
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Potential misalignment of incentives: If originators or servicers know that losses will be borne partly by investors rather than the enterprise, there may be residual moral-hazard issues (though Freddie Mac’s underwriting/servicing framework attempts to mitigate this).
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Limitation of scope: As of the 2015 report, CRT covered only certain loan types (e.g., 30-year fixed, LTV > 60%). Furthermore, transferring only the first few percentage points of loss (attach/detach) may cover only a portion of total risk. FHFA.gov+1
The 2025 Blog Post and Context
The blog post you referenced from 23 October 2025 on CreditRiskTransfers.com, titled “freddie mac credit risk transfer”, provides a short reflection of Freddie Mac’s CRT activity. creditrisktransfers.com While it is not deeply analytical or replete with new data, it serves as a reminder that the CRT market remains active and evolving.
The blog page also contains general information about CRT (“What is CRT?”, “How CRT works”, “CRT benefits”, etc) that provides useful context for understanding Freddie Mac’s programme. creditrisktransfers.com
Thus the blog post is useful for introductory purposes, though for deeper technical or investment-analysis work one would rely on Freddie Mac’s own disclosures, FHFA reports, and third-party models.
Current Trends & Outlook
Based on Freddie Mac’s publicly available materials and recent reports:
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The CRT programme continues to evolve: e.g., the handbook mentions newer structures, transitions to SOFR-based deals, REMIC forms, enriched data disclosure, and continued expansion of investor base. capitalmarkets.freddiemac.com+1
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The size of new CRT issuance in recent periods has varied: for example, the FHFA 2023 report notes that in 2023 the GSEs transferred risk on about $422 billion of UPB (vs cumulative $6.7 trillion) with RIF of about $13 billion for that year. FHFA.gov
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The housing-finance environment (interest rates, house-price trends, regulatory changes) may affect the economics of CRT: higher interest rates, slower house-price appreciation or declines increase credit risk, making CRT more valuable but perhaps more costly to implement.
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Regulatory interest: The FHFA, as conservator and regulator, will continue to monitor CRT programmes and may set scorecard or policy goals for risk transfer volumes, investor diversification, transparency and standardisation. FHFA.gov+1
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Potential for expansion: While single-family mortgages have been the main focus, Freddie Mac also has multifamily CRT vehicles (e.g., MSCR, MCIP) which point to broader applicability of the model. mf.freddiemac.com
Final Thoughts
Freddie Mac’s CRT programme represents a significant innovation in mortgage-credit risk management. By forging structured vehicles (securities, reinsurance) to shift a portion of credit risk from the federal guarantee to private capital, it strengthens the resilience of the U.S. housing-finance system, aligns incentives across originators/investors/servicers, and opens new opportunities for institutional participation in mortgage credit.
That said, CRT is not without its challenges — model risk, investor behaviour in downturns, structural/legal complexity, and ensuring meaningful risk transfer beyond just the first few loss basis points remain important considerations.
The blog post from October 2025 serves as a concise reminder of this programme’s existence and importance, but for investors, analysts or policy-makers seeking depth, the detailed handbook, FHFA reports, loan-level disclosures and transaction prospectuses remain essential.
