Freddie Mac is unveiling its ninth credit-risk transfer transaction of the year via its Structured Agency Credit Risk (STACR) program — bringing the total note offerings through its two flagship STACR series programs to $12.2 billion so far in 2022.
This agency’s most recent credit risk transfer (CRT) offering, STACR 2022-DNA6, involves a $1.165 billion note backed by a reference loan pool of 112,865 residential mortgages with an outstanding principal balance of $35.6 billion, according to a presale report by Kroll Bond Rating Agency (KBRA). This latest transaction, based on a tally of deal data to date, brings the total volume of reference pool single-family loans to $305.8 billion for the $12.2 billion in STACR risk-transfer note offerings this year. The reference pools are composed of a total of nearly 1.1 million single-family mortgages.
The offering totals were tallied across the agency’s two flagship STACR risk-sharing vehicles, which to date include six STACR-DNA and three STACR-HQA series offerings. The STACR-DNA series is designed for reference-pool mortgages with loan-to-value (LTVs) ratios ranging from 60% to 80% while the STACR-HQA series is designed for high LTV loans (80% to 97%), according to the agency.
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.
The leading loan originators represented in the reference loan pool for STACR 2022-DNA6, based on a percentage basis, according to KBRA’s ratings report, are United Wholesale Mortgage (UWM), 11.9%; J.P. Morgan Chase Bank, 6.5%; Rocket Mortgage, 6.4%; and Wells Fargo, 4.7%. The average loan balance in the reference pool is $315,272, with the maximum balance at $1.56 million.
The weighted average interest rate for the reference loan pool is 3.29%. The 30-year fixed mortgage rate averaged 5.89% this week, up from 5.66% the prior week, according to the most recent Freddie Mac Primary Mortgage Market Survey.
“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-DNA6 offering indicates that appraisal waivers were granted for 26.8% of the reference pool loans, which were assessed instead through the agency’s Automated Collateral Evaluator, or ACE, system.
“Loans with appraisal waivers have comprised an increasing percentage of agency loans, including those in CRT reference pools,” the KBRA report continues. 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 this latest Freddie Mac 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-DNA6 is relatively low at 18.5%,” 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, the agency’s largest offering to date, Freddie issued a $1.9 billion note against a reference pool of 143,889 single-family mortgages valued at about $45 billion.
Since then, Freddie has issued seven additional STACR credit-risk sharing offerings through the STACR DNA and HQA flagship series, including the most recent offering, for a total of nine offerings to date. The leading originators for the single-family mortgage reference pools linked to those transactions are UWM, J.P. Morgan Chase, Wells Fargo, Pennymac, Rocket Mortgage, Amerihome and Newrez LLC, according to presale reports from KBRA and DBRS Morningstar bond rating agencies.
RPL and NPL offerings
In related news, Freddie Mac also announced its second Seasoned Credit Risk Transfer Trust (SCRT) offering of the year, SCRT 2022-2, which is a securitization of 3,105 reperforming loans (RPLs). The deal, Freddie’s 21st since the SCRT program was launched in 2016, entails a total note offering of some $537 million — divided into $492 million in guaranteed senior certificates and $45 million in mezzanine and subordinate certificates.
“Advisors to this transaction are J.P. Morgan Securities LLC and Wells Fargo Securities LLC, as co-lead managers and joint bookrunners, and BofA Securities Inc., Citigroup Global Markets Inc., Nomura Securities International Inc. and Academy Securities Inc.… as co-managers,” Freddie Mac’s announcement of the offering states. “… The transaction is expected to settle on September 14, 2022.”
The initial deal of the year in the RPL-securitization series, SCRT 2022-1, involved a $1 billion note offering — also composed of guaranteed senior and nonguaranteed subordinate certificates — backed by a total of 6,677 seasoned reperforming single-family mortgage loans. Since 2016, Freddie Mac has issued $29.8 billion of guaranteed certificates and approximately $3.6 billion of nonguaranteed certificates through the SCRT program, according to the agency.
In yet another development, Freddie Mac’s sister agency, Fannie Mae, announced its second sale of nonperforming loans (NPLs) so far this year — and its 20th sale since the inaugural NPL offering in 2015. The whole-loan offering, dubbed FNMA 2022-NPL2, is carved into four pools composed of a total of 5,780 nonperforming loans valued at $959.1 million based on unpaid principal balance — plus a smaller Community Impact Pool (CIP) consisting of some 70 loans valued at $16.3 million.
“CIPs are typically smaller pools of loans that are geographically focused and marketed to encourage participation by non-profit organizations, minority- and women-owned businesses and smaller investors,” Fannie Mae stated in announcing the offering.
The sale of non-performing loans is being marketed with the help of BofA Securities Inc. and First Financial Network Inc., which are acting as advisors. Bids are due by October 4 on the four larger pools and by October 18 for the CIP pool.
Fannie Mae’s inaugural nonperforming loan sale of 2022, FNMA 2022-NPL1, was an offering carved into three loan pools — including a small Community Impact Pool — secured by a total of 3,440 loans with an aggregate unpaid principal balance of $525.9 million.
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