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Freddie Mac Revives Cash Securitization With New Product

globest.com | July 27, 2015

By Erika Morphy

McLEAN, VA—Last week Freddie Mac launched another new credit risk transfer product: a $300 million offering of guaranteed senior and unguaranteed subordinate actual loss securities structured in a cash securitization. It is another new product for the GSE, which along with Fannie Mae, has been experimenting with various offerings that push risk off of its balance sheet.

The offering, called the Freddie Mac Whole Loan Security, priced last week.

The WLS is a compliment to other product variations of this theme that Freddie Mac has launched over the years, such as its Structured Agency Credit Risk and Agency Credit Insurance Structure offerings, the GSE says.

"We led the industry in creating entirely new asset classes to de-concentrate risk across the financial system with STACR and ACIS," said Kevin Palmer, vice president of Freddie Mac Single-Family strategic credit costing and structuring, in a prepared statement.

"WLS represents another important capability to transfer credit risk. We believe this offering will be especially attractive to certain private capital participants that prefer a cash securitization."

Cash securitizations were the primary way the industry transferred credit risk in the mortgage market before the crisis, he noted. Since then, the market has been nearly dormant.

Freddie Mac's WLS "addresses some of the key concerns that investors experienced during the financial crisis, such as ensuring there is an active risk manager like Freddie Mac who can adapt mortgage servicing requirements to meet changing market conditions," Palmer said.

The GSE expects to have regular WLS issuances, he added.

Freddie Mac did not respond to a request for an interview from GlobeSt.com.

What It Looks Like

The trust will issue approximately $278 million in guaranteed senior certificates and approximately $23 million in unguaranteed subordinate certificates.

The WLS is a mix of traditional Freddie Mac features – such as the guarantee of the senior certificates -- as well as traditional private label ones.

The certificates are backed by 574 newly-originated super-conforming fixed-rate loans that originated in the fourth quarter of 2014 and the first quarter of 2015. These certificates, while eligible, were not delivered into TBA loan pools.

The principal payments on loans are allocated to senior and subordinate certificates on a pro-rata basis. These are subject to certain collateral performance and credit enhancement tests.

The senior certificates, other than the interest-only certificates, have fixed coupons. The interest-only certificates and subordinate certificates have net weighted average coupons.


Separately, Freddie Mac recently priced its second Q Certificates multifamily mortgage-backed security. These are Structured Pass-Through Certificates that are backed by multifamily loans not underwritten by Freddie Mac at the time of origination but that meet the company's current underwriting standards. The company expects to issue approximately $98 million in Q-002 Certificates, which are expected to settle on or about July 30, 2015. The first Q Certificate offering was settled in November 2014.


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