Freddie Mac is preparing its second offering of the year of Structured Agency Credit Notes, which offload some of the risk of default on mortgages that it insures.

STACR are general obligations of Freddie Mac, but their performance is linked to a reference pool of mortgages. This transaction, STACR Series 2017-HQA1, is linked to 123,472 loans totaling $29.65 billion that the company acquired between April 1 and July 31, 2016.

 It’s also the second STACR transaction linked to the performance of loans with higher loan-to-value ratios (LTVs) of up to 97%, compared with 95% in prior high LTV transactions.

Freddie’s first STACR of the year, completed in January, was linked to the performance of loans acquired over the same period of 2016 with lower LTVs ranging from 60%-80%.

Fitch believes the increased risk associated with these very high LTV loans is modest, but that’s due to the relatively small number of loans represented just 2.3% of the total pool. The weighted average LTV of the pool is 91.8%.

By other metrics, the borrowers in the 2017-HQA1 pool are good credits; they have a weighted average credit score of 747 and weighted average debt-to-income ratio of 35.4%; most used the loans to acquire their primary residence.

The top originators in the pool are Wells Fargo (17%), US Bank (6%) and Quicken (5%), unchanged from the previous high-LTV transaction.

Fitch has assigned a BBB- to the $210 million M1 tranche, a BB to the $236.25 million M2a tranche, and a B to the $235.25 million M2b tranche. The most $15 million B2 tranche, which has exposure to the first losses sustained on the pool, is unrated.

All of the notes have a hard maturity of August 2029.

Freddie Mac will retain credit risk in the transaction by holding the senior reference tranche A-H, which has 4.25% of loss protection, as well as a minimum of 5% of the M-1, M-2A, M-2B, and B-1 tranches and a minimum of 75% of the first-loss B-2 tranche. Initially, Freddie Mac will retain an approximately 29.2% vertical slice/interest in the M-1, M-2A and M-2B tranches.

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