Freddie Mac unveils 4th CRT offering of the year

The transaction will transfer a portion of the risk on a $35.4 billion residential-loan reference pool

Freddie Mac is bringing another credit-risk transfer offering to market, its fourth of the year, through the agency’s Structured Agency Credit Risk (STACR) program. 

The credit risk transfer (CRT) offering, STACR 2022-DNA4, involves a $1.5 billion note backed by a reference loan pool of 118,055 residential mortgages with an outstanding principal balance of $35.4 billion, according to a presale report by Kroll Bond Rating Agency (KBRA). This latest transaction brings the total note issuance so far in 2022 through STACR to $6.6 billion secured by single-family mortgage reference loan pools valued in total at $156.9 billion.

The leading loan originators represented in the reference loan pool on a percentage basis for this fourth STACR transaction, according to KBRA’s ratings report on the deal, are Rocket Mortgage, 9.6%; United Wholesale Mortgage (UWM), 7.2%; J.P. Morgan Chase Bank, 6.9%; and Wells Fargo, 4.8%. The average loan balance in the reference pool is $299,602, with the maximum balance at $1.56 million. 

The weighted average interest rate for the loan pool is 3.13%. The average Interest rate for a 30-year fixed-rate mortgage, according to Freddie Mac’s primary mortgage market survey, is now at 5.27%, up from 5.1% a week earlier.

“CPRs [conditional repayment rates] may continue to slow and may remain low in such a rising interest rate environment as borrowers have ‘locked in’ low mortgage financing and have a reduced incentive to refinance,” the KBRA presale report states. “Lower prepayment rates extend the average life of mortgage portfolios and can generally cause a larger set of borrowers to be exposed to economic stresses, which can lead to increased levels of defaults and losses.”

KBRA’s presale ratings report on the STACR 2022-DNA4 offering indicates that appraisal wavers were granted for 37.6% of the reference pool loans, which were assessed instead through the agency’s Automated Collateral Evaluator, or ACE, system. The report also notes that “a broad valuation haircut” is applied to such loans, primarily because a property review and valuation were not conducted for the mortgages originated with the appraisal waivers.

The KBRA report also mentions that the loan reference pool for the CRT offering has far more geographic diversity when compared with a typical prime-jumbo residential mortgage-backed securities offering. That diversity helps to mitigate the risk that an economic crisis or natural disaster will create disproportionate risk for the reference loan pool. 

“When considering the average California percentage in KBRA-rated prime jumbo pools (approximately 45% to 50%), the California concentration in STACR 2022-DNA4 is relatively low at 15.4%,” the KBRA report states. 

The initial STARC deal of this year, STACR 2022-DNA1, was a $1.4 billion note offering issued against a reference loan pool of 190,774 residential mortgages with an outstanding principal balance of $33.6 billion. In the second offering, STACR 2022-DNA2, Freddie issued a $1.9 billion note against a reference pool of 143,889 single-family mortgages valued at about $45 billion. 

The leading originators for the loan pool in the first STACR offering of 2022, according to a KBRA ratings report, were UWM, 7%; Newrez LLC, 7%; Rocket Mortgage, 6.6%; Pennymac, 6.3%; and J.P. Morgan Chase, 5.9%.

UWM also was the leading originator in the second STACR deal of 2022, at 9.1% of the loan pool. Rocket Mortgage also made a showing, at 8.3%, followed by Wells Fargo, 6.1%; JPMorgan Chase, 5.9%; and Newrez, 5%.

The third credit risk transfer (CRT) offering, STACR 2022-DNA3, involved a $1.8 billion note backed by a reference loan pool of 140,950 residential mortgages with an outstanding principal balance of $42.9 billion The leading loan originators for the loan pool in the third STACR offering were Rocket Mortgage, 9.1%; UWM, 7%; J.P. Morgan Chase Bank, 5%; and Pennymac, 4.8%. 

Freddie Mac earlier this year announced that its credit-risk transfer (CRT) program is projecting note-issuance volume of at least $25 billion in 2022. 

Through Freddie Mac’s STACR transactions, private investors participate with the agency in sharing a portion of the mortgage credit risk in the reference loan pools retained by the agency. Investors receive principal and interest payments on the STACR notes they purchase, but if credit losses exceed a predefined threshold per the security issued, then investors are responsible for absorbing the losses exceeding that mark. 

“The STACR 2022-DNA4 … structure reduces the amount of counterparty exposure by limiting the payment obligations of Freddie Mac to reimbursements and indemnifications in the event that the trust assets do not yield sufficient cashflow to pay note interest and principal,” the KBRA presale ratings report states.

Freddie Mac’s overall single-family CRT program in 2021 issued some $18.7 billion in notes backed by mortgage pools valued in total at nearly $829 billion through 10 STACR offerings and 11 ACIS [Agency Credit Insurance Structure] transactions. 

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