Freddie Mac is expanding its efforts to sell to private investors a portion of the credit risk on certain multifamily mortgages it guarantees.
The company Monday settled its first offering of multifamily Structured Credit Risk (SCR) Notes, unsecured general obligations whose performance is linked to the credit and principal payment risk of a reference pool of multifamily mortgage loans backing state and local housing finance agency tax-exempt bonds.
The new program is similar to Structured Agency Credit Risk notes, which Freddie launched in 2013 to transfer the credit risk of single family mortgages backing mortgage bonds that it guarantees.
Both programs reduce taxpayers' exposure to mortgage default risk.
In this initial offering, Freddie Mac sold $52 million of class B notes issued by SCR Notes Series 2016-MDN1, which transfer the first loss risk on a reference pool of more than 50 multifamily mortgage loans originated between 2007 and 2015 with an approximate unpaid principal balance of $1.04 billion. Systima Capital Management is the sole initial investor for the class B notes.
Freddie Mac retains the senior loss credit risk on the Series 2016-MDN1.
Wells Fargo is the sole structuring agent, lead manager and sole bookrunner.
"Freddie Mac is a market leader in shifting credit risk away from taxpayers and to the private market," Victor Pa, vice president of multifamily investments for Freddie Mac, said in a press release. "We are bringing additional capital markets expertise to the targeted affordable apartment market.”
Pa said the market is ready for this type of investment. Freddie Mac expects to have one or two SCR Notes offerings a year, and expand the program over time.