Investments

Freddie Mac offering first actual loss high-LTV risk-sharing deal

STACR 2015-HQA1 features loans with 80-95% loan-to-value ratio

Freddie Mac is breaking more ground in its push to alleviate the risk to American taxpayers by offloading some of its credit risk onto investors.

The government-sponsored enterprise announced earlier this week that it intends to expand its Structured Agency Credit Risk Series with its first risk-sharing offering that features actual loss on loans with loan-to-value ratios ranging from 80% to 95%.

The STACR 2015-HQA1 offering of $872 million is Freddie Mac’s third transaction where losses will be allocated based on the actual losses realized on the related reference obligations instead of allocating losses using a fixed severity approach, and the first where the actual loss is offered on loans with high LTVs.

Previously, Freddie Mac offered risk-sharing deals with actual loss positions as well as risk-sharing deals on loans with high LTVs, but this is the first deal with both.

With STACR 2015-HQA1, Freddie Mac is issuing 100 basis points of first loss. Freddie Mac holds the senior loss risk in the capital structure and a portion of the risk in the Class M-1, M-2 and M-3 and the first loss Class B tranche.

STACR 2015-HQA1 has a reference pool of single-family mortgages with an unpaid principal balance of more than $19 billion.

The reference pool consists of a subset of 30-year fixed-rate single-family mortgages acquired by Freddie Mac between Aug. 1, 2014, and Nov. 30, 2014, with LTVs from 80% to 95%.

Bank of America Merrill Lynch and Nomura will serve as co-lead managers and joint bookrunners. Deutsche Bank and BNP Paribas are co-managers, and Williams Capital is a selling group member, Freddie Mac said.

Additionally, Freddie Mac announced that it will now provide STACR preliminary payment disclosure on the fourth business day of the month following the release of PC disclosures instead of the 25th business day of the month, when this data was previously announced.

"The STACR market is becoming more sensitive to prepayment speeds, and these changes provide investors with access to the information as soon as possible," said Mike Reynolds, Freddie Mac vice president of credit risk transfer. "Our goal is to be attuned to what the market is looking for and to adjust our disclosures accordingly."

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