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KBRA Assigns Preliminary Ratings to STACR Notes

Rates BHKroll Bond Rating Agency [1] (KBRA) recently reported that they assigned preliminary ratings to nine classes of notes from Freddie Mac [2]’s Structured Agency Credit Risk (STACR) Debt Notes, Series 2016-HQA3 (STACR 2016-HQA3), is a recent report from the agency.

STACR 2016-HQA3 is a credit risk sharing transaction with a total note offering of $515,000,000. STACR 2016-HQA3 represents Freddie Mac’s 23rd risk transfer deal under the STACR shelf, as well as the fifth in its actual loss ‘HQA’ series that features loans with loan-to-value ratios greater than 80 percent, but less than or equal to 95 percent. The Offered Notes represent unsecured general obligations of Freddie Mac, with payments subject to the credit and principal payment risks of the STACR 2016-HQA3 Reference Pool.

The report states that the STACR 2016-HQA3 Reference Pool consists of 68,900 residential mortgage loans with an aggregate cut-off balance of approximately $15.7 billion. The loans in the Reference Pool (Reference Obligations) are fully-documented, fully-amortizing fixed-rate mortgages of prime quality. The report also notes that as mentioned, the pool is characterized by loans with loan-to-value ratios that are greater than 80 percent and less than or equal to 95 percent, with the weighted average loan-to-value equal to 91.83 percent. KBRA states that approximately 0.21 percent of the loans possessed subordinate financing at origination, contributing to the pool’s weighted average combined loan-to-value ratio of 91.85 percent. Additionally, it is stated that the borrowers in the STACR 2016-HQA3 Reference Pool have a weighted average credit score of 748 and a weighted average debt-to-income ratio of 35.32 percent.

KBRA’s rating approach incorporated loan-level analysis of the reference pool through its Residential Mortgage Default and Loss Model, an examination of the results from loan file reviews performed by an independent third-party firm, cash flow modeling analysis of the transaction’s payment structure, reviews of key transaction parties and an assessment of the transaction’s legal structure and documentation. KBRA states that this analysis is further described in their U.S. RMBS Rating Methodology.

With this in mind, Freddie Mac recent announced [3] its intentions to sell its sixth offering this year of Structured Agency Credit Risk (STACR) debt notes, pending market conditions. Freddie Mac states that through the STACR program, the GSE is able to transfer a significant portion of the mortgage credit risk on certain single-family loans to private capital market investors. For this particular STACR pool, Bank of America Merrill Lynch and Goldman, Sachs & Co. will serve as co-lead managers and joint bookrunners.