Freddie Mac's latest risk-sharing transaction offers a few investors exposure to even more losses on the residential mortgages that it insures.
The $725 million Structured Agency Credit Risk (STACR) Series 2015-HQ1 references a pool of recently-originated, single-family loans with an unpaid principal balance of more than $16.5 billion. The loans are made to borrowers who have between 5% and 20% of the equity in their homes, the company said in a press release.
Credit Suisse and Bank of America Merrill Lynch will serve as co-lead managers and joint bookrunners.
This is Freddie’s second risk-sharing deal of the year. Like the one completed in January, it offers investors exposure to the risk of first loss, through issuance of B notes, when borrowers stop making payments. Previous deals required losses to reach a threshold before the company received funds to cover them.
The B notes of the deal completed in January pay 1150 basis points over one-month LIBOR. However this tranche absorbed just the first 100 basis points of losses; while the B notes of the current deal absorb the first 150 basis points of losses.
As with the previous deal, Freddie will hold a portion of the B notes as well as a portion of the class M-3 notes, M-2 and M-1 notes. It will also hold the senior loss risk.
"We expect routine sales of the higher LTV benchmark HQ series to facilitate more transparency and liquidity in the credit risk transfer market," said Mike Reynolds, Freddie Mac vice president of credit risk transfer, said in the release.