Freddie Mac hopes to issue more Mortgage Linked Amortizing Notes similar to the one it priced late last week.
“We aspire to issue more of these on a more regular basis in benchmark size,” said Mohit Sudhakar, senior portfolio director in charge of debt and liquidity management at Freddie Mac. (Benchmark size is generally at least $1 billion.)
Whether more deals actually get done depends on both market reception and Freddie Mac's own needs, Sudhakar told ASR sister publication National Mortgage News. But currently the future for MLANs looks promising.
MLANs, which are unsecured senior debt but mimic the behavior of principal payments on a reference pool of mortgage-related securities, are not only a funding tool but an asset-liability management tool, Sudhakar said. In both roles, the notes could work to taxpayers' advantage given Freddie's government-sponsored status, he added.
The need for their use in the latter capacity arises from mounting difficulties in hedging prepayment risk, he said, noting that it is more effective from a cost standpoint than traditional derivatives used in hedging.
The initial $3 billion MLAN deal “behaves like a mortgage except that it has a contractual maturity that is shorter than a traditional mortgage security and it is issued at par, which will hopefully bring in a variety of traditional unsecured debt and mortgage investors.”
Principal payment behavior mirrors or references (but does not directly derive any cash flows from) a Freddie Mac Giant in the case of the initial deal. (Giants are aggregations of smaller mortgage pass-through securities into a larger pass-through.) The MLAN has a 2.06% coupon.