Freddie Mac rolls out $1.8 billion CRT note offering

The transaction, the agency’s third so far this year, is backed by mortgage reference pool valued at $42.9 billion

Freddie Mac
Freddie Mac’s headquarters in Washington, D.C.

Freddie Mac has unveiled its third credit risk transfer offering of the year through its Structured Agency Credit Risk (STACR) program. This latest transaction will bring the total note issuance so far in 2022 through STACR to $5.1 billion secured by single-family mortgage reference loan pools valued in total at $121.5 billion.

This latest credit risk transfer (CRT) offering, STACR 2022-DNA3, involves 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 represented in the reference loan pool on a percentage basis for this third STACR transaction, according to Kroll Bond Rating Agency’s [KBRA’s] ratings report on the deal, are Rocket Mortgage, 9.1%; United Wholesale Mortgage (UWM), 7%; J.P. Morgan Chase Bank, 5%; and Pennymac, 4.8%.

KBRA’s presale ratings report on the STACR 2022-DNA3 offering indicates that appraisal wavers were granted for nearly 40% of the reference pool loans, which were assessed instead through the agency’s Automated Collateral Evaluator, or ACE, system. 

“It should be noted that while the ACE program assesses the acceptability of a property value or sales price based on the use of proprietary models and market data, it does so without Freddie Mac having performed a property review or having obtained a valuation of the property,” the KBRA report states. “As a result, KBRA applied a broad valuation haircut to such loans.”

The KBRA report also mentions that the loan reference pool for the CRT offering has far more geographic diversity when compared to a typical residential mortgage-backed securities offering involving high-balance loans. The average loan balance in the reference pool for the current CRT offering is $304,267.

“When considering the average California percentage in KBRA-rated prime jumbo pools (approximately 45% to 50%), the California concentration in STACR 2022-DNA3 is relatively low at 16.0%,” the KBRA report states. “… Geographic diversity helps mitigate the risk that a regional economic recession or natural disaster will have an outsized impact on default rates.”

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%; J.P. Morgan Chase, 5.9%; and Newrez, 5%.

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. 

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. 

“Since the first CRT transaction in 2013, Freddie Mac’s single-family CRT program has cumulatively transferred approximately $85.3 billion in credit risk on approximately $2.7 trillion in mortgages through STACR and ACIS,” Freddie Mac announced in late February. “As of December 31, 2021, approximately 53 percent of the single-family mortgage portfolio was covered by credit enhancement.”

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