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56 FREDDIE MAC SPREADS RISK Freddie Mac announced a move at the begin- ning of last month aimed at reducing the risk to the taxpayer associated with its credit exposure in the residential mortgage market. e enter- prise has obtained a number of insurance poli- cies underwritten by a panel of "well-capitalized insurers and reinsurers". e policies were acquired under Fred- die Mac's Agency Credit Insurance Struc- ture (ACIS), which has a stated goal of providing multiple avenues for sharing mortgage credit risk with a diverse spectrum of private investors in a responsible way that does not reduce liquidity or adversely impact the availability of mortgage credit. is is the third insurance transaction of this nature that the GSE has entered into since November of 2013. e transaction represents the company's largest credit risk transfer of this type and cov- ers up to a combined maximum of almost $285 million of losses for a portion of the credit risk associated with a pool of Single-Family loans acquired in the second quarter of 2013. "With this third reinsurance transaction, we are bringing in new reinsurance and insurance companies, and distributing risk across more market participants," said Kevin Palmer, vice president of Single-Family strategic credit cost- ing and structuring for Freddie Mac. Obtaining the insurance is only one method that Freddie Mac is utilizing. In its 2013 Scorecard goals, the Federal Hous- ing Finance Agency (FHFA) instructed both Fannie Mae and Freddie Mac to transfer a sig- nificant portion of the credit risk on a minimum of $30 billion of new mortgage securitizations. Both of the GSE's realized these benchmarks using a combination of structured product sales in the capital markets and different types of insurance-based transactions. Now a year later, the FHFA is raising the stakes by requiring the enterprises to triple the effect of their risk mitigation strategy by transfer- ring a substantial portion of the credit risk on $90 billion of new mortgages. It requires them to at the very least continue their current practice of offering structured product sales and insurance transactions to accomplish the goal. e FHFA wants them to go further. e agency's 2014 Strategic Plan for the Conservator- ship of Fannie Mae and Freddie Mac, released in May, encourages the enterprises to stretch their risk mitigation programs further by engaging in multiple types of risk-transfer transactions. e plan contends that even though investor demand is high at the moment, long-term de- mand for the new offerings has yet to be tested. If the capital markets were to dry up or the enterprises have difficulty obtaining insurance on the mortgage securitizations, it would pose a risk to the long-term strategy. Diversifying the methods will broaden the investor base and aid sustainability. MORTGAGE RATES REMAIN STEADY AFTER FED MEETING Just as the Federal Reserve stuck to its course on bond purchases in recent weeks, mortgage rates too remained more or less steady, measures show. Freddie Mac released the results of its Pri- mary Mortgage Market Survey for the week ending June 19, recording an average interest rate of 4.17 percent (0.6 point) for a 30-year fixed-rate mortgage (FRM), down from 4.2 percent the previous week. A year ago, the 30-year FRM averaged 3.93 percent. e 15-year FRM was also down, albeit only 1 basis point, averaging 3.3 percent (0.5 point) for the week. Shifting to adjustable-rate mortgages (ARMs), the average rate for a five-year Treasury-indexed hybrid ARM was 3 percent (0.4 point) for the week ending June 19, fall- ing from 3.05 percent. e one-year ARM, on the other hand, ticked up to 2.41 percent (0.4 point) from 2.4 percent previously. A year ago, interest rates were on their way up on speculation that the Fed may soon start tapering its bond stimulus. Now that the central bank is on track to potentially end its stimulus purchases by the end of the year, rates have actually shown little movement, defying expectations. While the first quarter's economic contrac- tion is partly responsible for rates staying put, analysts at finance site Bankrate.com say de- velopments overseas are also having an effect. "[A]lthough the Fed is buying fewer bonds, the ongoing stimulus efforts of the European Central Bank have driven interest rates so low on the other side of the Atlantic that many overseas investors have piled into U.S. Treasuries, filling the void left by the Fed and keeping both bond yields and mort- gage rates at low levels," they said. As for its own national survey, Bankrate captured the 30-year fixed at an average 4.33 percent, down a point, while the 15-year fixed was up the same amount 3.44 percent. Meanwhile the 5/1 ARM remained unchanged at 3.37 percent. As of June 2014, more than 1.1 million properties nationally were more than 90 days past due but not in foreclosure, according to Black Knight Financial Services. KNOW THIS

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