Freddie Mac Launches New Credit Risk Structure for Affordable Housing Loans

McLEAN, VA—Freddie Mac has developed a new credit risk transfer offering to sell affordable housing mortgage loans to the private sector. It has just settled its first offering of $52 million of these notes.

Freddie Mac is calling the new product Multifamily Structured Credit Risk (SCR) Debt Notes.

Private investors are sold a portion of the credit risk on certain multifamily mortgage loans that back targeted affordable rental housing tax-exempt bonds guaranteed by Freddie Mac.

SCR Notes are unsecured and unguaranteed corporate bonds — SCR Notes are not backed or secured by the reference pool itself — that transfers the first-loss credit risk of a specified pool of mortgages to private capital markets credit investors. Freddie Mac retains the senior loss credit risk.

There is appetite in the private sector for this product, said Victor Pa, VP of multifamily investments for Freddie Mac. “We expect to have one or two SCR Notes offerings a year, and expand the program over time,” he said in a prepared statement.

The amount of periodic principal and ultimate principal paid by Freddie Mac is determined by the performance of the reference pool, which in this inaugural offering consisted of more than 50 multifamily mortgage loans originated between 2007 and 2015 with an approximate unpaid principal balance of $1.04 billion.

McLEAN, VA—Freddie Mac has developed a new credit risk transfer offering to sell affordable housing mortgage loans to the private sector. It has just settled its first offering of $52 million of these notes.

Freddie Mac is calling the new product Multifamily Structured Credit Risk (SCR) Debt Notes.

Private investors are sold a portion of the credit risk on certain multifamily mortgage loans that back targeted affordable rental housing tax-exempt bonds guaranteed by Freddie Mac.

SCR Notes are unsecured and unguaranteed corporate bonds — SCR Notes are not backed or secured by the reference pool itself — that transfers the first-loss credit risk of a specified pool of mortgages to private capital markets credit investors. Freddie Mac retains the senior loss credit risk.

There is appetite in the private sector for this product, said Victor Pa, VP of multifamily investments for Freddie Mac. “We expect to have one or two SCR Notes offerings a year, and expand the program over time,” he said in a prepared statement.

The amount of periodic principal and ultimate principal paid by Freddie Mac is determined by the performance of the reference pool, which in this inaugural offering consisted of more than 50 multifamily mortgage loans originated between 2007 and 2015 with an approximate unpaid principal balance of $1.04 billion.