Kroll Bond Rating Agency [1] has assigned preliminary ratings to debt notes of Freddie Mac. Their Pre-Sale Report [2] examines 19 classes of notes from Freddie Mac’s Structured Agency Credit Risk (STACR) Debt Notes.
The notes, formally known as STACR 2017-DNA1, have a total offering of $742,000,000.
As the report notes, these notes are unsecured obligations by Freddie Mac, similar to the agency MBS notes which Freddie Mac currently guarantees. In other words, these notes are not explicitly guaranteed by the federal government.
Amounts due on the notes will be calculated by assessing the performance of mortgage loans in a Reference Pool which were obtained between April 1, 2016 and June 30, 2016. The report notes that the “Reference Pool consists of 137,250 residential mortgage loans with an outstanding principal balance of approximately $34.0 billion as of the Cut-Off Date.” All of the loans are of prime quality and hold an average FICO score of 751, well above the average FICO level encountered before the 2008 crisis.
The ratings assigned to the loans are not concrete, and they may change based upon the development of new information.
“The ratings…are preliminary and subsequent information may result in the assignment of final ratings that differ from preliminary ratings,” the report notes.
The firm uses its own rating methods, in addition to those of third party groups, in order to facilitate a fair rating for all note assignments.
“RMBS transactions and in instances where KBRA is expected to rate a particular transaction, we will evaluate the results of such third party loan file review as part of our overall analysis of the transaction. However, in certain circumstances, a loan file review may be performed by KBRA (typically through consultants or a third-party review firm) outside of the context of a particular transaction and solely for purposes of determining the loan originator’s compliance with its underwriting criteria for purposes of our originator review process.”