Freddie Mac

McLEAN, VA—On Friday we reported that Freddie Mac has launched a tax-exempt loan program for affordable housing development that is a variation on the 4% Low-Income Housing Tax Credit execution. The news is of interest to affordable housing developers and local governments that want to see more such projects come online in their jurisdictions, but also to another group as well: investors that would like to participate in the tax-exempt housing market.

As part of the program, the GSE plans to aggregate the tax-exempt loans and related taxable securities, and securitize them though a M-Deal structure. It expects the offering size to be around $300 million. The GSE hopes to launch an M-Deal by year-end, Shaun Smith, senior director, Targeted Affordable Production with Freddie Mac, tells

The M-Deals will be similar to Freddie Mac’s K-Deal structures, a key difference being the M-Deals will be straightforward pass through structures and K-Deals are REMICs, Smith says.

A typical M-Deal would have 90% of the transaction in the A piece, which will be wrapped with a Freddie Mac credit enhancement and sold as agency paper. The bottom 10% would be sold to private payers and not be credit enhanced. The collateral backing the senior/subordinate securities will be fixed-rate loans with a 35-year amortization with up to an 18-year balloon.