Freddie Mac uses a three-pronged risk management infrastructure

Freddie Mac employs multiple strategies to maintain optimal loan quality and data transparency:

Underwriting standards – captured by Freddie Mac Loan AdvisorSM – position loans to meet requirements for eligibility, documentation and representation and warranties. Loan quality control practices – including post-close credit review and the underwriting defects repurchase process – position loans to perform at or above expected levels. Robust seller/servicer management – including in-house quality control and performance monitoring – provides that quality control is maintained for loans sold and/or serviced by third-parties.


Freddie Mac -
Risk Management

Underwriting Standards

  • Documentation standards and credit eligibility requirements
  • Delegated underwriting guidelines
  • Seller representations and warranties
  • Loan Advisor [?]

Quality Control

  • Post-close credit review
  • Quality assurance
  • Compliance review
  • Performing loan quality control review
  • Non-performing loan quality control review
  • Underwriting defects repurchase process

Servicer Management

  • Seller in-house quality control
  • Seller servicer approval standards
  • Loan servicer performance monitoring and scorecard
  • CORE reviews [?]

A stronger, more transparent market

Freddie Mac’s Credit Risk Transfer program has revolutionized how the U.S. housing market operates. Supported by an advanced Risk Management framework, the program contributes to sustained efficiency in the housing market. Freddie Mac continues to pursue financial innovations, leveraging new technologies and powerful data to optimize loan manufacturing quality, data transparency and timely performance reporting.

US Housing Prior to 2007 Crisis

  • Loans of varying quality & lower standards
  • Loans originated on the basis of limited and inaccurate data
  • Limited quality assurance on origination data
  • Limited loan status monitoring
  • Less stringent rules and management of loan servicing
  • Limited transparency into loan assets and performance
  • An active third-party derivative market creating our CDOs for the benefit of a less technical audience

The Credit Risk Market Today

  • Better loan manufacturing practices
  • Tighter conforming loan requirements
  • Larger data set required from originator
  • Rigorous quality control checks in place
  • Tighter quality control practices
  • Transparency on loan pool and performance
  • Freddie Mac is one of the primary participants in mortgage credit risk transfer transactions

TAKE THE NEXT STEP Want to Learn More?

Find out how Credit Risk Transfer creates investor opportunities while strengthening the U.S. mortgage market.

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