I have been wondering when Fannie Mae and Freddie Mac were going to expand their risk-sharing mortgage-backed securities offerings. They have been slowly expanding investor exposure (and reduce taxpayer exposure) to test the waters, so to speak.
Freddie Mac has now taken another small step in the right direction with their STACR program.
(Bloomberg) — All Freddie Mac STACR sales may be moved to the “actual loss” structure from the “fixed-severity” model used since the program’s inception, Kevin Palmer, Freddie Mac VP of Single Family, said during an interview at Freddie’s McLean, Va. headquarters Wednesday.
Palmer said the actual loss deal marketing this week, the 1st of its kind, is a “pilot”
Freddie is discussing the new bond with market participants and has conducted a large scale “listening tour”
“If it goes well, starting in September or October all transactions will be actual loss,” Palmer said
Palmer cites accounting treatment as reason for the shift: traditional STACR transaction requires derivative accounting, mark-to-market
Current accounting structure “not a healthy framework”
Actual loss also allows transfer of more volatility risk
Relatively new STACR and CAS transactions may have gone through “growing pains” last year
Saw period of sharp spread tightening and then widening
In 2013, ~$1b issued, while in 2014 ~$10b was sold; quick ramp-up was a lot for the market to absorb
There’s now “equilibrium” in the market
Freddie changed the way it has syndicated STACR product in reaction to 2014 spread volatility
Now, it markets at a lower size, with flexibility to upsize
Also, Freddie has calibrated offerings:
*Amid good conditions, it can transfer risk though STACR
*If conditions not favorable, Freddie can use Agency Credit Insurance Structure (ACIS) program; it might only transfer half of risk through STACR, and then use reinsurance markets via ACIS
*Strives to be “deliberate and methodical” with STACR; trying to avoid too much customization, wants “one standardized security for all”
Joint Bookrunners: Credit Suisse (str) and Citigroup.
Anticipated Capital Structure
CLS, $AMT(mm), WAL, F/M
M-1, 200.000, 1.89, AA-/A3
M-2, 200.000, 4.33, A/Baa3
M-3, 250.000, 8.17, BB+/B1
B, 70.000, 9.99, NR/NR
Bloomberg Ticker: STACR 2015-DNA1
Increased Seasoning: 28 Months (4Q 2012 Originations)
Class B is now DTC Eligible
Here is the deal structure for STACR 2015-DNA1.
By the way, STARC stands for STRUCTURED AGENCY CREDIT RISK DEBT NOTES. Not to be confused with Burger King’s Stackers!!