There’s a lot to like about Freddie Mac’s Structured Agency Credit Risk notes, which provide investors with exposure to the risk of defaults on conforming mortgages. That’s something currently unavailable in any other form.  Legacy residential mortgage bonds are backed by subprime and Alt-A loans, while post-crisis RMBS is backed almost exclusively by jumbo loans.

The potential demand for this kind of product is huge: the $900 billion in face value of outstanding legacy RMBS is paying down at a rate of about $80 billion a year. The money managers that hold this paper will likely want to replace the exposure, assuming the new securities are sufficiently liquid. If rated, STACR notes could also see plenty of demand from banks and insurance companies.

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