Freddie Mac is now on board the REMIC train.
A year after Fannie Mae launched its first credit-risk transfer securitization using a real estate mortgage investment conduit, Freddie is now electing to also opt for a REMIC format in offloading credit risk of securitized mortgages to private investors.
The REMIC format of the Freddie Mac Structured Agency Credit Risk (STACR) REMIC Trust 2019-DNA4 will permit a $589 million bond offering to be made through a bankruptcy-remote trust instead of the GSE’s standard STACR credit-linked note platform.
By utilizing the REMIC structure, Freddie can widen the potential investor base for the notes to real estate investment trusts and other certain institutional buyers. The structure also provides more protection to investors since these STACR bonds secured by a trust are not general obligations of the GSE.
“This structure better protects investors from potential future counterparty risk exposure to Freddie Mac,” stated a presale report from S&P Global Ratings. “The assets of the trust in this transaction are intended to fund interest and principal payments on the notes, although investors still have the benefit of a Freddie Mac backstop in the case of any shortfalls.”
The note offerings consist of several mezzanine and subordinate bond classes, with preliminary ratings ranging from BBB to single-B by S&P and Kroll Bond Rating Agency.
Payments on the notes will be from interest on investment earnings and principal through liquidation proceeds — rather than direct cash flow — of an underlying $20.5 billion reference pool of 88,579 loans that were securitized earlier this year by Freddie Mac.
All of the loans are prime, first-lien loans with a weighted average borrower FICO of 748, and most (86.5% of the pool balance) were originated in the past year. Nearly 84% are owner-occupied home loans, and 62.4% are purchase loans. The loan-to-value ratios range between 60% and 80% for all contracts.