Freddie Mac will conduct its first-ever structured sale of seasoned loans from its mortgage-related investments portfolio, according to an announcement from Freddie Mac on Wednesday.
The pilot sale for Freddie Mac-guaranteed loans serviced by JPMorgan Chase is worth $199 million, and the majority of loans are less than six months current or are moderately delinquent, according to Freddie Mac. The collateral is comprised of Option Adjustable-Rate Mortgages (ARMs) and loans that were originated as Option ARMs but were later modified either through the government’s Home Affordable Modification Program (HAMP) or a proprietary modification.
The seasoned loan transaction includes two steps. The first step is a competitive bidding process; in the second step, the buyer of the loans will securitize the loans after the completion of collateral due diligence, according to Freddie Mac.
The transaction will expand Freddie Mac’s reperforming loan (RPL) securitization program, which has securitized approximately $24 billion to date, and consists of loans that were previously delinquent and are currently performing—many as a result of a modification. The transaction also expands Freddie Mac’s non-performing loan (NPL) sales program, which has sold and settled NPLs totaling $4.3 billion in aggregate unpaid principal balance through March 31, 2016. The NPL program sales feature loans that are deeply delinquent, sometimes by as many as three, four, or five years.
“The RPL securitization program and NPL sales program are a key part of Freddie Mac's strategy to reduce less liquid assets in its mortgage-related investments portfolio, shed credit and market risk via economically reasonable and well-controlled transactions, potentially improve borrower outcomes in the event of a default and promote neighborhood stability,” Freddie Mac said in the announcement. “It is a key requirement of this transaction that the buyer of the subordinate tranche must be an investor with substantial experience managing ‘high-risk’ mortgage loans as well as substantial experience in securitizations.”
The servicing of the loans in the seasoned loan sale will be in accordance with requirements similar to those that apply in Freddie Mac’s sales of non-performing loans (NPLs).