Freddie Mac Said to Plan New Type of Mortgage Risk-Transfer Debt

Freddie Mac is expanding its risk-sharing efforts meant to protect taxpayers and potentially prepare the $9.4 trillion U.S. home-loan market for its future.

In a planned $300 million offering of mortgage-backed securities being managed by Credit Suisse Group AG, the government-backed company will sell $22.5 million of junior-ranking bonds without its guarantees, a person with knowledge of the deal said.

Freddie Mac plans to hold a call for investors next week to discuss the new type of transaction, said the person, who asked not to be named without authorization to speak publicly. Brad German, a spokesman for the McLean, Virginia-based company, declined to comment.

The bonds reflect directions that Freddie Mac and rival Fannie Mae have received from their overseer, the Federal Housing Finance Agency, to experiment with different ways of pushing their losses from homeowner defaults to bond buyers and insurers. The FHFA has also pushed them to increase the amount of the risk-sharing.

In the short term, the effort is meant to protect taxpayers. The initiative also resembles some of the visions proposed by lawmakers for winding down Freddie and Fannie, which were seized by the U.S. in 2008.

Since starting sales of their risk-transfer debt in 2013, Fannie Mae and Freddie Mac have issued more than $20 billion of the securities, along with entering into similar insurance deals.

Their previous risk-sharing bonds are direct obligations of the companies, and their performance is tied to the amount of homeowner defaults on loans in separate mortgage securities that they guarantee. That approach allows the insured bonds to continue to trade in the so-called To Be Announced market that forms the backbone of U.S. mortgage finance.