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Freddie Trying to Find the Balance in Credit-Risk Deals 

November 2, 2016

Brian Collins, National Mortgage News

Freddie Mac's credit risk transfers come with a hefty price tag, but are ultimately still worth it, according to Chief Executive Don Layton.

The government-sponsored enterprise has completely nearly $182 billion in credit risk transfers in which a portion of its credit risk is absorbed by a third-party company either before or after the mortgages are closed. The interest and premiums the GSE pays on the transfers effectively reduced Freddie's guarantee income by roughly 33% for the transactions executed through Sept. 30.

In an interview, Layton said that such a deal still makes economic sense for Freddie under certain conditions."Credit risk transfer is an efficient and good thing to do on its own, if the income you give up is relatively small verses the reduction in risk," Layton said. "The calculations for determining the benefits of a deal are internal and not visible to the outsiders. We deal with our regulator to make sure these calculations are reasonable and that is our guiding light."

Layton noted that determining a good deal is a balancing act."If we have to give up too much income, the taxpayer is better off sitting on the risk." Read more 

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