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Freddie Readies Another Actual Loss STACR

Freddie Mac is taking advantage of favorable market conditions to tee up another offering of securities transferring the credit risk of residential mortgages that it insures.

The deal, STACR2016-DNA4 is the company’s 24th Structured Agency Credit Risk transaction, and the seventh in its actual loss ‘DNA’ series that features loans with original loan-to-value ratios of between 60% and 80%.

The notes are general obligations of Freddie Mac, but are linked to the performance of a $24.8 billion reference pool of 106,116 mortgages acquired by Freddie between January 1, 2016 and March 31, 2016, and subsequently securitized into agency mortgage-backed securities. Payment of interest and principal can be written down if enough of the loans in the reference pool default.

The Class M-1, Class M-2, Class M-3 and Class B Notes will be offered to investors.

The remaining classes are unrated and will be retained by Freddie Mac.

These loans have a weighted average FICO of 748, which is well above Freddie Mac’s historical pre-crisis average and in line with recent prime jumbo RMBS, according to Kroll Bond Rating Agency. They also have a weighted average debt-to-income ratio of 34.6%, which is higher than KBRA typically sees in prime jumbo RMBS, but still consistent with prime-quality underwriting.

Freddie Mac has agreed to retain at least 5% of the aggregate credit risk at each mezzanine tranche level.

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