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Freddie Mac Announces Securitization of Reperforming Loans

Freddie Mac

Freddie MacFreddie Mac [1] recently priced its second Seasoned Credit Risk Transfer Trust offering of 2018, with the total coming in at around $1.6 billion.

As detailed in the GSE’s press release [2], this securitization includes both guaranteed senior and unguaranteed subordinate securities. Freddie’s statement explains that “the SCRT securitization program is a key part of Freddie Mac's seasoned loan offerings [3] to reduce less liquid assets in its mortgage-related investments portfolio and shed credit and market risk via economically reasonable transactions.”

Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2018-2 will issue roughly $1.5 billion in guaranteed senior certificates and approximately $127 million in “unguaranteed mezzanine and subordinate certificates.” The issuance should be settled by June 13, 2018, according to Freddie.

The collateral backing this securitization consists of “8,628 fixed- and step-rate modified seasoned reperforming loans,” which Freddie’s statement notes were modified to help borrowers at risk of foreclosure and have since been performing for at least 12 months as of issuance.

Specialized Loan Servicing LLC services the loans, with Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated set as co-lead managers and joint bookrunners. Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, and Samuel A. Ramirez & Company, Inc. will serve as co-managers.

In February, Freddie Mac reported a Q4 2017 loss [4] of  $3.3 billion, which required $300 million in federal assistance. That report came on the heels of fellow GSE Fannie Mae posting a $6.5 billion Q4 2017 downturn, which required a $3.7 billion bailout. Freddie reported $5.6 billion in annual net income in 2017. A $4.5 billion benefit from a litigation settlement ($2.9 billion after taxes) and a $5.4 billion write-down of the net deferred tax asset resulting from December's tax overhaul by Congress were the two main contributing factors to the GSE's net income last year.

To date, Freddie Mac has sold $7 billion of non-performing loans. To learn more about the GSE’s seasoned loan offerings, click here.