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Global investors taking risk from Freddie Mac

Risk-sharing bond transactions gain attention

Freddie Mac
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Freddie Mac priced its fourth risk-sharing deal to great investor and insurer interest, worldwide even.

The government-sponsored enterprise $966 million offering of the Freddie Mac Structured Agency Credit Risk debt notes, Series 2014-DN2, priced today, the second offering this year where private investors and not taxpayers predominately take the credit risk.

Kevin Palmer, vice president of single-family strategic credit costing and structuring for Freddie Mac, said more types of private capital solutions are in the works for Freddie.

"Yesterday, several representatives from global reinsurers spent the day at Freddie Mac to learn how we manage our single-family business risk, and our loan servicing and quality control processes," he said.

"We are developing multiple avenues for sharing mortgage credit risk with a diverse spectrum of private investors," he added.

The global reinsurers cover a portion of the risk on the loans in the reference pools associated with each STACR offering.

"We are pleased with the markets' appetite for these notes with more than 75 investors participating. We've now brought four offerings to market since last July, all of which were well-received and traded well," said Donna Corley, senior vice president of single-family pricing, risk transfer and securitization for Freddie Mac.

"Our goal is to have regular, consistent issuances at least quarterly," Corley added.

This goal is now more of a possibility given the reinsurer appetite to support Freddie Mac.

The current STACR deal pricing reflects strong investor interest in the oversubscribed offering.

Pricing for the Series 2014-DN2 M-1 class was one-month LIBOR plus a spread of 85 basis points.

Pricing for the M-2 class was one month LIBOR plus a spread of 165 basis points.

Pricing for the M-3 class was one month LIBOR plus a spread of 360 basis points.

The series is reference by a pool of more than 116,000 residential loans, representing an unpaid principal balance of approximately $28.5 billion.

The collateral is primarily 30-year mortgages from the third quarter of 2013. That not necessarily when originated, but rather it reflects when Freddie purchased the loans.

Freddie Mac holds the senior risk and the first loss risk in reference pool, and a portion of the risk in the M-1, M-2 and M-3 classes.

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