Freddie Mac has reached a binding commitment with Chimera Investment Corp., a New York-based real estate investment trust, in its pilot structured sale of seasoned loans.
Chimera will buy 846 seasoned loans that are serviced by JP Morgan Chase and guaranteed by the government-sponsored enterprise, Freddie Mac said Tuesday. The transaction, which Freddie Mac began marketing in late June, is expected to close in October.
The sale is an expansion on Freddie Mac's existing re-performing loan securitization and non-performing loan sales programs. The seasoned loan offerings are part of Freddie Mac's plan "to reduce less liquid assets in its mortgage-related investments portfolio, shed credit and market risk via economically reasonable and well-controlled transactions, potentially improve borrower outcomes in the event of a default and promote neighborhood stability," the GSE said in a news release.
Chimera offered the second highest bid price in the auction, which when stated in the form of a whole loan bid was in the high $70s.
The pool carries $198.9 million in unpaid principal balance and contains seasoned Option adjustable-rate mortgages and loans that were originated as Option ARMs and subsequently modified via the Home Affordable Mortgage Program or a proprietary modification.
A majority of the loans are less than six months current or moderately delinquent. The pool also has a loan-to-value ratio of roughly 70% and is geographically diverse.
Bidders for the pool were required to be investors "with substantial experience in managing both 'high-risk' mortgage loans as well as in securitizations," Freddie Mac said.
Following due diligence, Chimera is expected to purchase and concurrently securitize the loans. Freddie Mac will then guarantee and purchase senior tranches of the securitization at par, reserving the right to retain or sell those tranches. The first loss subordinate tranche will at first be held by Chimera.
The loans will be serviced following the same requirements applied to the sale of non-performing loans, Freddie Mac said.
Keywords: Chimera Investment Corp, Freddie Mac, non-performing loan sales, re-performing loan securitization, seasoned loans, option ARMs, JPMorgan Chas, HAMP