Freddie Mac is expanding its efforts to sell to private investors a portion of the credit risk on certain multifamily mortgage loans backing targeted affordable rental housing tax-exempt bonds guaranteed by Freddie Mac. The company today settled its first offering of $52 million worth of Freddie Mac Multifamily Structured Credit Risk (SCR) Debt Notes.
SCR Notes are unsecured and unguaranteed corporate bonds that build on the company’s multifamily securities offerings and single-family Structured Agency Credit Risk debt notes, reducing taxpayers’ exposure to mortgage default risk. With SCR Notes, the first-loss credit risk of a specified pool of mortgages is transferred to private capital markets credit investors. Freddie Mac retains the senior loss credit risk.
“Freddie Mac is a market leader in shifting credit risk away from taxpayers and to the private market,” Victor Pa, vice president of Freddie Mac’s multifamily investments said in a statement. “We are bringing additional capital markets expertise to the targeted affordable apartment market. The market is ready for this type of investment. We expect to have one or two SCR Notes offerings a year, and expand the program over time.”
SCR Notes Offering Details
The $52 million SCR Notes Series 2016-MDN1, class B, is linked to the credit and principal payment risk of a reference pool of multifamily mortgage loans backing state and local housing finance agency tax-exempt bonds for which Freddie Mac provides credit enhancement. The SCR Notes are not backed or secured by the reference pool itself. Wells Fargo is the sole structuring agent, lead manager and sole bookrunner. Systima Capital Management is the sole initial investor for the issued notes.
The amount of periodic principal and ultimate principal paid by Freddie Mac is determined by the performance of the reference pool consisting of more than 50 multifamily mortgage loans originated between 2007 and 2015 with an approximate unpaid principal balance of $1.04 billion. The mortgage loans were primarily funded by the issuance of targeted affordable rental housing tax-exempt bonds guaranteed by Freddie Mac. The loans adhere to Freddie Mac’s underwriting, internal fraud prevention and quality control standards.
