Freddie Mac 2015 Annual Report Download - page 40

Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee
Freddie Mac 2015 Form 10-K 38
• ACIS insurance policies - In this transaction, we purchase insurance policies, typically underwritten
by a group of insurers and reinsurers, that provide credit protection for certain specified credit events
that occur and are allocated to the non-issued notional credit risk positions of a STACR debt note
transaction (i.e., the risk positions that Freddie Mac retains). Under each insurance policy, we pay
monthly premiums that are determined based on the outstanding balance of the STACR debt note
reference pool. When specific credit events occur, we receive compensation from the insurance
policy up to an aggregate limit based on a predefined formula or based on actual losses. We require
insurers and reinsurers to partially collateralize their exposure to reduce the risk that we will not be
reimbursed for our claims under the policies.
In 2015, we began offering two new types of credit risk transfer transactions:
• Whole loan securities - In this transaction, we issue guaranteed senior securities and unguaranteed
subordinated securities backed by single-family loans. The unguaranteed subordinated securities will
absorb first losses on the related loans.
• Seller indemnification agreement - In this transaction, we enter into an agreement upon loan
acquisition with a seller under which the seller will absorb a portion of losses on the related single-
family loans in exchange for a fee or a reduction in our management and guarantee fee. The
indemnification amount may be fully or partially collateralized.
We also use other types of credit enhancements, such as primary mortgage insurance, to mitigate our
credit risk exposure. See “Risk Management” for additional information on our credit risk transfer
transactions, as well as the other types of credit enhancements we use.