Nov. 30: Agencies shifting risk, reducing taxpayer exposure, increasing capital, indirectly helping borrowers

Most lenders will tell you that they’re trying to provide stellar customer service at the best possible price for their clients in the most efficient, cost-effective way. Aggregators, like Wells Fargo, PennyMac, and AmeriHome, for example, do their part. But on a much larger scale the Agencies (aka Freddie and Fannie) continue to help that process in both the primary and secondary markets, hoping to achieve competitive pricing in the secondary market while limiting risks borne by taxpayers. Along those lines, billions of dollars of conforming conventional loans have been bundled into CRT (Credit Risk Transfer) bond deals, nonperforming, or multifamily deals, which help reduce taxpayer exposure to the large book of mortgages guaranteed by the two housing giants and help the Agencies manage their capital.

I am occasionally asked if CRT deals will help MLOs find more borrowers? It is a legitimate question. Both Fannie & Freddie have been doing frontend and backend deals in which part of the credit risk is shared with third party investors – for a price. In the deals, the investors pay cash up front and purchase debt securities that are designed to absorb the credit losses on GSE (government sponsored enterprises) loan pools. The goal is to attract private capital into the mortgage market and shift some risk away from taxpayers since we are currently on the hook for Freddie & Fannie.

Supply and demand move mortgage rates. And if the demand for securities is strong, that helps the price, and therefore the rates to your borrower will be less. In theory. But to entice investors to participate, Fannie & Freddie must lower their gfees and backstop any mortgage insurance on loans with more than an 80% LTV. One way to think about it is if the Agencies contribute to lessen losses, through their guarantee fees, the and private MI companies cover a portion of the default risk on the underlying loans.

Investors who buy MBS like the fact that, with the high LTV CRT deals the GSEs provide a backstop to the MI component of that piece. You can follow along at home by watching for news about Connecticut Avenue Securities (Fannie) and Structured Agency Credit Risk (Freddie’s STACRs). Both lower guarantee fees, and therefore help borrower’s rates & prices.

And if you’re worried about the private mortgage insurance companies, remember that the MI companies have recapitalized and must now meet FHFA financial standards, aka Private Mortgage Insurer Eligibility Requirements (PMIERs) to insure Freddie and Fannie loans.

All of that should be positive for rate sheets for borrowers.

Freddie Mac’s Single-Family business announced on November 5 that its Credit Risk Transfer (CRT) program transferred approximately $2.5 billion of credit risk on $69 billion of single-family mortgages from U.S. taxpayers to the private sector in the third quarter of 2019. This brings the year-to-date total of credit risk transferred to $7.3 billion on $196 billion of single-family mortgages. The CRT program presents attractive opportunities for private capital to participate as Freddie expands CRT coverage across its book of business. Through its flagship offerings, Freddie Mac issued a total of six STACR and ACIS transactions in the third quarter—three on-the-run deals (DNA and HQA) and three seasoned deals (ARMR and FTR). As a result of STACR and ACIS on the run transactions this quarter, Freddie Mac transferred between 80 percent (high LTV HQA series) and 90 percent (low LTV DNA series) of the credit risk on the underlying reference pools, helping to reduce capital required under the Conservatorship Capital Framework. Since the first CRT transaction in 2013, Freddie Mac’s single-family CRT program has cumulatively transferred $51 billion in credit risk on nearly $1.4 trillion in mortgages.

Fannie sold a US$963.459m Connecticut Avenue Securities (CAS) deal, CAS 2019-HRP1, backed by home loans produced from its “Refi Plus” program that includes ones that came from the Home Affordable Refinance Program (HARP). It was the eighth and final CAS offering of 2019. Bank of America was the lead structuring manager and joint bookrunner, and Citigroup was the co-lead manager and joint bookrunner. Fannie Mae said it is expected to return to the market with a CAS deal referencing newly acquired loans in mid-January.

Freddie Mac priced a $1.3 billion K-099 deal, backed by underlying collateral consisting of fixed-rate multifamily mortgages with predominantly 10-year terms, which settled on October 30. Offers for any given security are made only through applicable offering circulars and related supplements, which incorporate Freddie Mac’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 14, 2019; all other reports Freddie Mac filed with the SEC pursuant to Section 13(a) of the Securities Exchange Act of 1934 since December 31, 2018, excluding any information “furnished” to the SEC on Form 8-K; and all documents that Freddie Mac files with the SEC pursuant to Sections 13(a), 13(c) or 14 of the Exchange Act, excluding any information “furnished” to the SEC on Form 8-K. Pricing for K-099 is as follows. Class A-1 has principal of $134.5 million, a weighted average life of 6.75 years, a coupon of 2.258 percent, a yield of 2.16409 percent, and a $100.4957 price. Class A-2 has principal of $1,133.029 million, a weighted average life of 9.80 years, a coupon of 2.595 percent, a yield of 2.24508 percent, and a $102.995 price. Finally, Class A-M has principal of $57.79 million, a weighted average life of 9.90 years, a coupon of 2.304 percent, a yield of 2.29816 percent, and a $99.9948 price.

Freddie priced the $769 million K-F69 transaction, backed by floating-rate multifamily mortgages with 10-year terms, which settled on October 30. The K-F69 Certificates were not rated, and will include one senior principal and interest class, one interest-only class, and one class entitled to static prepayment premiums. The K-F69 Certificates are backed by corresponding classes issued by the FREMF 2019-KF69 Mortgage Trust and guaranteed by Freddie Mac. The KF69 Trust will also issue certificates consisting of the Class B, C and R Certificates, which will be subordinate to the classes backing the K-F69 Certificates and will not be guaranteed by Freddie Mac. The only offered class, Class A, has principal of $769.159 million, a weighted average life of 9.58 years, a coupon of 1-month LIBOR plus 52 bps, and an even $100.00 price. Classes XI and XP, which both contain principal of $854.622 million, will not be offered.

Freddie Mac also priced the $717 million K-1513 deal, which is comprised of certificates that settled on October 24. K-1513 pricing is as follows. Class A-1 has principal of $61.436 million, a weighted average life of 7.92 years, a coupon of 2.335 percent, a yield of 2.2553 percent, and a $100.4938 price. Class A-2 has principal of $119.824 million, a weighted average life of 11.54 years, a coupon of 2.726 percent, a yield of 2.4221 percent, and a $102.9987 price. Class A-3 has principal of $535.908 million, a weighted average life of 14.68. years, a coupon of 2.797 percent, a yield of 2.5503 percent, and a $102.9995 price. Class X1 has principal of $717.168 million, a weighted average life of 12.93 years, a coupon of 0.999 percent, a yield of 3.4143 percent, and a $9.091 price. Finally, Class X3 has principal of $79.686 million, a weighted average life of 14.76 years, a coupon of 3.0334 percent, a yield of 4.9094 percent, and a $31.1632 price. Freddie Mac requested and received preliminary designations and breakpoints from the National Association of Insurance Commissioners Structured Securities Group. The Regulatory Treatment Analysis Service provided a preliminary indication of the probable insurance regulatory treatment of K-1513 guaranteed classes and provided preliminary NAIC breakpoints for the K-1513 mezzanine securities.

Freddie Mac recently priced a new $564 million offering of Structured Pass-Through K-Certificates (K-W09) backed by fixed-rate mortgages on multifamily properties affordable to working households earning low-to-moderate incomes. This marks the company’s ninth K-Certificate issued under the K-W series and settled in July. The underlying mortgages backing K-W09 are on workforce properties, which generally have rents that are affordable to individuals earning 80 percent or less of their area median income, excluding high cost housing markets. K-W09 pricing is as follows. Class A-1 has principal of $131.994 million, a weighted average life of 6.71 years, a coupon of 2.716 percent, a yield of 2.3745 percent, and a dollar price of $101.9951. Class A-2 has principal of $432.138 million, a weighted average life of 9.72 years, a coupon of 2.929 percent, a yield of 2.5709 percent, and a dollar price of $102.9942. Class X1 has principal of $564.132 million, a weighted average life of 9.02 years, a coupon of 0.9392 percent, a yield of 3.5805 percent, and a dollar price of $6.3132. Finally, class X3 has principal of $62.681 million, a weighted average life of 9.86 years, a coupon of 3.1113 percent, a yield of 5.0631 percent, and a dollar price of $23.116. K-W09 Certificates are guaranteed by Freddie Mac.

Freddie also priced a new $966 million offering of Structured Pass-Through K-Certificates (K-L05), backed by two groups of loans. One group (Pillar Loan Group) consists of 16 fixed-rate mortgages backed by 16 properties and the other group (Harbor Loan Group) consists of 6 crossed fixed-rate mortgages backed by 6 properties. The transaction collateral is part of Freddie Mac’s K-L series of certificates, which are backed by large loans or pools of related mortgage loans on multifamily properties. The K-L05 Certificates are expected to settle on or about August 12, 2019. Pricing for the deal is as follows. Class A-P has principal of $707.222 million, a weighted average life of 9.87 years, a coupon of 2.536 percent, a yield of 2.4159 percent, and a dollar price of $100.99. Class A1-HG has principal of $13.99 million, a weighted average life of 8.10 years, a coupon of 2.395 percent, a yield of 2.3855 percent, and a dollar price of $100.00. Class A2-HG has principal of $245.372 million, a weighted average life of 9.54 years, a coupon of 2.652 percent, a yield of 2.5271 percent, and a dollar price of $100.99. Finally, class X1-P has principal of $707.222 million, a weighted average life of 9.62 years, a coupon of 1.0243 percent, a yield of 3.8217 percent, and a dollar price of $7.58.

Finally, Freddie priced a $602 million K-C Series offering of Structured Pass-Through Certificates (K-C05), which are multifamily mortgage-backed securities that settled on November 7. The K-C05 Certificates are guaranteed by Freddie Mac and are backed by 7-year and 10-year fixed rate loans that feature longer than typical periods of reduced prepayment penalties before maturity. Class A-SB has principal of $52.333 million, a weighted average life of 5.46 years, a coupon of 2.23 percent, a yield of 2.2615 percent, and a $99.745 price. Class A-7 has principal of $330.609 million, a weighted average life of 6.51 years, a coupon of 2.539 percent, a yield of 2.3573 percent, and a $100.9958 price. Finally, Class A-10 has principal of $219.593 percent, a weighted average life of 9.41 years, a coupon of 2.631 percent, a yield of 2.5047 percent, and a $100.992 price.

Fannie Mae announced the completion of its seventh Credit Insurance Risk Transfer (CIRT 2019-4) transaction of 2019, covering $10.5 billion in unpaid principal balance of 21-year to 30-year original term fixed rate loans previously acquired by the company. The deal is part of Fannie Mae’s ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. To date, Fannie Mae has committed to acquire approximately $10.3 billion of insurance coverage on $386 billion of single-family loans through the CIRT program, measured at the time of issuance for both post-acquisition (bulk) and front-end transactions. Fannie Mae will retain risk for the first 40 basis points of loss on a $10.5 billion pool of single-family loans with loan-to-value ratios greater than 80 percent and less than or equal to 97 percent. If the $42 million retention layer is exhausted, fifteen insurers and reinsurers will cover the next 375 basis points of loss on the pool, up to a maximum coverage of approximately $392 million. Coverage for these deals is provided based upon actual losses for a term of 12.5 years. A summary of key deal terms, including pricing, for these new and past CIRT transactions can be found here.

On November 6, Freddie announced it sold via auction 2,243 non-performing residential first lien loans (NPLs) from its mortgage-related investments portfolio. The sale is part of Freddie Mac’s Standard Pool Offerings (SPO). Freddie Mac, through its advisors, began marketing the transaction on October 8, 2019 to potential bidders, including non-profits and Minority, Women, Disabled, LGBT, Veteran or Service-Disabled Veteran-Owned Businesses (MWDOBs), neighborhood advocacy organizations and private investors active in the NPL market. Bids for the upcoming Extended Timeline Pool Offering (EXPO), which is a smaller sized pool of loans, are due from qualified bidders by November 14, 2019. For the SPO offerings, the loans were offered as four separate pools of mortgage loans. The four pools consist of mortgage loans secured by geographically diverse properties. Investors had the flexibility to bid on each pool individually and/or any combination of pools. The SPO pools are summarized below: Pool #1 has an unpaid principal balance of $92.1 million, 556 loans in all CLTV ranges, on average 26 months delinquent, with the average loan balance being $165,700. Pool #2 has an unpaid principal balance of $108.1 million, 778 loans with a CLTV range less than or equal to 60, on average 38 months delinquent, with the average loan balance being $139,000. Pool #3 has an unpaid principal balance of $95.6 million, 554 loans with CLTV’s between 60 and 90, on average of 19 months delinquent, with the average loan balance being $172,500. Finally, Pool #4 has an unpaid principal balance of $73.3 million, 355 loans with a CLTV range greater than 90 percent, on average 20 months delinquent, with the average loan balance being $206,400. Given the delinquency status of the loans, the borrowers have likely been evaluated previously for or are already in various stages of loss mitigation, including modification or other alternatives to foreclosure, or are in foreclosure. Mortgages that were previously modified and subsequently became delinquent comprise approximately 63 percent of the aggregate pool balance. Additionally, purchasers are required to solicit distressed borrowers for additional assistance except in limited cases and ensure all pending loss mitigation actions are completed. To date, Freddie Mac has sold $8.1 billion of NPLs and securitized more than $56.7 billion of RPLs consisting of $28.7 billion via fully guaranteed PCs, $22.5 billion via Seasoned Credit Risk Transfer (SCRT) senior/sub securitizations, and $5.5 billion via Seasoned Loans Structured Transaction (SLST) offerings. Requirements guiding the servicing of these transactions are focused on improving borrower outcomes and stabilizing communities.

Freddie Mac was very busy on November 7, pricing three deals. It priced a new $739 million offering of Structured Pass-Through K-Certificates (K-F71 Certificates) backed by floating-rate multifamily mortgages with 10-year terms. The certificates settled on November 15. The only offered class, the $739.197 million Class A, has a weighted average life of 9.59 years, a coupon of 1-month LIBOR + 56 bps, and an even 100.00 dollar price. Classes XI and XP, both $821.331 million, will not be offered.

Freddie Mac also priced a $448 million offering of Structured Pass-Through K-Certificates (K-S13 Certificates) backed exclusively by multifamily mortgages on seniors housing properties. The transaction is backed by two loans, each with floating-rate components and, collectively, twenty-seven underlying properties controlled directly or indirectly by KKR, as described in the offering documents. K-S13 is expected to settle on or about November 15, 2019. This is Freddie Mac’s thirteenth K Certificate offering backed exclusively by seniors housing. The one offered class, the $448.200 million Class A, has a weighted average life of 9.59 years, a coupon of 1-month LIBOR plus 66 bps, and an even 100.00 dollar price. Freddie Mac Multifamily sources its seniors housing loans from a select group of Optigo lenders with extensive experience in the seniors housing market, purchasing a variety of seniors housing loans including those backed by independent living properties, assisted living properties, memory care properties and senior properties with a limited amount of skilled nursing care.

Freddie priced the $1.1 billion K-100 deal, backed by underlying collateral consisting of fixed-rate multifamily mortgages with predominantly 10-year terms, which settled on November 15. K-100 is the 100th execution of Freddie Mac Multifamily’s flagship 10-year K-series. Freddie Mac Multifamily now executes more than a dozen variants of K-deals, which all have similar structures but differ based on the various terms of the multifamily mortgages being securitized. The K-series securitizations transfer the substantial majority of credit risk, shielding taxpayers from potential losses while serving a wide variety of investor needs. The net result is a more affordable, stable and liquid multifamily market. Pricing for the deal is as follows. Class A-1 has principal of $100.423 million, a weighted average life of 6.78 years, a coupon of 2.297 percent, a yield of 2.0278 percent, and a $100.4998 price. Class A-2 has principal of $1,024.023 million, a weighted average life of 9.82 years, a coupon of 2.673 percent, a yield of 2.32293 percent, and a $102.9916 price. Finally, Class A-M has principal of $62.086 million, a weighted average life of 9.86 years, a coupon of 2.38 percent, a yield of 2.37418 percent, and a $99.995 price.

On November 14, Freddie Mac announced pricing on the fourth Seasoned Credit Risk Transfer Trust offering of 2019—a rated securitization of approximately $2.3 billion including both guaranteed senior and unguaranteed subordinate securities backed by a pool of seasoned re-performing loans (RPLs).  Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2019-4 includes approximately $2.1 billion in guaranteed senior certificates and approximately $229 million in unguaranteed mezzanine and subordinate certificates. The underlying collateral consists of 12,347 fixed- and step-rate, seasoned RPLs which were modified to assist borrowers who were at risk of foreclosure to help them keep their homes. As of the cutoff date, all of the mortgage loans have been performing for at least 12 months. To date, Freddie Mac has sold $8 billion of Non-Performing Loans (NPLs) and securitized approximately $57 billion of RPLs consisting of $29 billion of fully guaranteed PCs, $23 billion of SCRT senior/sub securitizations, and $6 billion of Seasoned Loans Structured Transaction offerings.

Freddie Mac priced a new $703.97 million offering of Structured Pass-Through K Certificates (K-F72) which settled on November 26, backed by floating-rate multifamily mortgages with 7-year terms. The K-F72 Certificates will not be rated, and will include one senior principal and interest class, one interest-only class, and one class entitled to static prepayment premiums. The one offered class, Class A, will have principal of $703.967 million, a weighted average life of 6.64 years, a coupon of 1-month LIBOR plus 50 bps, and an even $100.00 price. The K-F72 Certificates are backed by corresponding classes issued by the FREMF 2019-KF72 Mortgage Trust (KF72 Trust) and guaranteed by Freddie Mac. The KF72 Trust will also issue certificates consisting of the Class B, C and R Certificates, which will be subordinate to the classes backing the K-F72 Certificates and will not be guaranteed by Freddie Mac.

On November 21, Freddie closed its second Multifamily Credit Insurance Pool (MCIP) offering, MCIP 2019-R2, reinsuring risk on a $1.87 billion reference pool made up of 88 multifamily loans. Partnering with reinsurance broker Aon, Freddie Mac retains the first .75 percent of losses, and has purchased credit risk insurance for the next 4.5 percent of credit losses on the reference pool which consists of conventional and affordable loans in Freddie Mac’s Multifamily Participation Certificate program. There are eight reinsurers participating in this transaction. In MCIP transactions, Freddie Mac enters into long-term credit insurance contracts whereby a portion of any credit losses that occurs from existing multifamily loans in the company’s portfolio or bonds that Freddie Mac fully guarantees is covered by reinsurers. By transferring a percentage of credit risk to reinsurers, Freddie Mac reduces its need to hold capital for the underlying loans in the pool. Freddie Mac announced the first MCIP transaction, MCIP-2018-1, under the new risk transfer program in January 2019.

On November 18, Freddie priced a $474 million offering of Structured Pass-Through K Certificates (K-W10) backed by fixed-rate mortgages on multifamily properties affordable to working households earning low-to-moderate incomes. The underlying mortgages backing K-W10 are on workforce properties, which generally have rents that are affordable to individuals earning 80 percent or less of their area median income, excluding high cost housing markets. K-W10 Certificates are guaranteed by Freddie Mac. Class A-1 has principal of $53.53 million, a weighted average life of 6.70 years, a coupon of 2.277 percent, a yield of 2.1823 percent, and a dollar price of $100.4953. Class A-2 has principal of $420.60 million, a weighted average life of 9.75 years, a coupon of 2.691 percent, a yield of 2.338 percent, and a $102.9955 price.

Freddie Mac announced the pricing of the SB68 offering, a $482 million multifamily mortgage-backed securitization backed by small balance loans underwritten by Freddie Mac and issued by a third-party trust. Freddie Mac Small Balance Loans generally range from $1 million to $6 million and are generally backed by properties with five or more units. This is the eleventh SB Certificate transaction in 2019. Freddie Mac is guaranteeing five senior principal and interest classes and one interest only class of securities issued by the FRESB 2019-SB68 Mortgage Trust. Freddie Mac is also acting as mortgage loan seller and master servicer to the trust. In addition to the six classes of securities guaranteed by Freddie Mac, the trust will issue certificates consisting of Class B and Class R Certificates, which will not be guaranteed by Freddie Mac and will be sold to private investors. The Optigo Small Balance Loan (SBL) origination initiative was first announced in October 2014, and expands the company’s continuing effort to better serve less populated markets and provide additional liquidity to smaller apartment properties. Freddie Mac has a specialty network of Optigo Seller/Servicers and Optigo SBL lenders with extensive experience in this market who source loans across the country. Pricing for the deal is as follows. Class A-5H has principal of $191.380 million, a weighted average life of 3.96 years, a coupon of 2.39 percent, a yield of 2.23 percent, and a $100.4940 price. Class A-7F has principal of $74.867 million, a weighted average life of 5.45 years, a coupon of 2.28 percent, a yield of 2.17 percent, and a $100.4555 price. Class A-7H has principal of $60.444 million, a weighted average life of 5.56 years, a coupon of 2.48 percent, a yield of 2.37 percent, and a $100.4510 price. Class A-10F has principal of $94.032 million, a weighted average life of 7.26 million, a coupon of 2.42 percent, a yield of 2.33 percent, and a $100.4943 price. Finally, Class A-10H has principal of $62.082 million, a weighted average life of 7.20 years, a coupon of 2.58 percent, a yield of 2.49 percent, and a $100.4934 price.

A salesman was going door to door trying to sell his wares. As he walked up to the next house, he noticed a small boy sitting on the front steps.

“Is your mother home?” the salesman asked the small boy.

“Yeah, she’s home,” the boy said, scooting over to let him past.

The salesman rang the doorbell, got no response, knocked once, then again. Still no one came to the door.

Turning to the boy, the fellow said, “I thought you said your mother was home?!”

The kid replied, “She is, but this isn’t where I live.”

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “Fannie & Freddie: A Snapshot” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.

Rob

(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are hundreds of mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2019 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)