Multifamily Credit Insurance Pool (MCIP) transactions are insurance-based credit risk sharing transactions that use insurance policies with global (re)insurance companies to cover a portion of credit risk associated with eligible multifamily mortgages linked to reference pools, thereby reducing U.S. taxpayers’ exposure to mortgage default risk. MCIP transactions offer (re)insurers an innovative way to add U.S. multifamily housing market exposure while benefiting from Freddie Mac’s industry-leading underwriting and credit risk management standards.
MCIP transactions can be linked to specific MSCR (Multifamily Structured Credit Risk) reference pools or executed on a MCIP standalone basis.
- Freddie Mac holds the senior risk, the first-loss piece, and a minimum 5% interest in each tranche, all of which are unfunded and not issued.
- MCIP performance is determined by credit and payment experience of the reference obligations.
- Actual losses realized from credit and modification events in the reference pool follow specific hierarchies and allocation rules, which can trigger claims on those policies.
- Waterfall triggers are based on delinquency and minimum credit enhancement tests, and the failure of either test will change the timing and amounts of insurance payments.
- The MCIP policies will be subject to termination upon the occurrence of early termination events or the insured’s exercise of either an early redemption option or early call option.
Note: The structure graph above illustrates an MCIP transaction linked to an MSCR reference pool. There are no blue MSCR blocks in a standalone MCIP transaction.
- Diversification: A large, diversified pool provides more stable and predictable performance and reduces idiosyncratic risk.
- Strong Underwriting: Reference obligations are underwritten to the same Freddie Mac Multifamily underwriting standards as mortgage loans securitized in K-Deals® and other comparable securitizations.
- Standardized Servicing Guidelines: Uniform across Freddie Mac Multifamily’s entire portfolio.
- Alignment of Interest: Freddie Mac retains a minimum of 5% interest in each tranche to further align interest with (re)insurers through the life of the insurance policies.
- Risk Appetite: Multi-layer program structure allows for risk appetite matching.