On Wednesday, Freddie Mac [1] sold $817 million worth of seasoned loans, which completed its third Seasoned Loan Structured Transaction (SLST) of seasoned re-performing loans (RPL) and moderately delinquent loans serviced by Mr. Cooper [2].
According to a recent report [3] by Freddie Mac, the SLST securitization program auctioned 3,514 seasoned RPLs. In addition, the report notes that the GSE’s program is a key factor to seasoned loan offering initiatives, which were designed to “reduce less liquid assets in its mortgage-related investments portfolio, and shed credit and market risk via economically reasonable transactions.”
Essentially, the transaction involves a two-step process. First, the sale of the loans via a “competitive bidding process subject to a securitization term sheet.” According to Freddie Mac, the sale will be implemented on the basis of economics, subject to meeting its internal reserve levels. Second, the transaction requires the purchaser of the loans to securitize the loans.
The major requirement of Freddie Mac’s SLST transaction is that the buyer of the loans be an investor with extensive experience in managing both performing and moderately delinquent mortgage loans, as well as securitizing mortgage loans.
The servicing of the loans is in accordance with RPL [4] protocol and similar to FHFA [5] requirements. Freddie Mac’s RPL requires servicers to apply a waterfall of resolution tactics, with foreclosure as the last option in the waterfall.
The FHFA non-performing loan (NPL) requirements draw from experiences of sales of NPLs over the past year. According to the FHFA, as of the end of February 2016, the GSEs had sold over 29,000 mortgages with a total unpaid principal balance of $5.8 billion.
In total [6], Freddie Mac has sold $7 billion in NPLs and securitized $31 billion in RPLs to date.
The transaction is expected to settle in November 2017.