Freddie Multifamily Gets Liquid with Securitization

Mortgage giant Freddie Mac (FRE) late last week announced it settled the offering Series K-003 Structured Pass-Through Certificates, or K Certificates. The offered certificates consist of multifamily mortgage-backed securities composed of mortgages originated through Freddie’s Capital Markets Execution. The dealer managers in the transactions, led by Deutsche Bank Securities, offered the certificates to a number of investors including money managers, life insurance companies and pension funds. The transactions should provide liquidity and affordability, according to a company statement. “The successful completion of this transaction demonstrates Freddie Mac’s unwavering commitment to find new and innovative ways to provide critically-needed liquidity and stability to the country’s multifamily housing finance market,” said Mike May, senior vice president of multifamily at Freddie. “We’re pleased with the positive response from investors and customers to our multifamily securitization efforts. Investor response to the offering was strong and all classes of K Certificates were oversubscribed.” But investors in the pass-through securities and even the multifamily market aren’t the only things benefitting from the settled offering. The government-sponsored enterprise itself stands to gain from the settled transaction. “This transaction offered the global capital markets structured securities backed by Freddie Mac multifamily mortgages,” May adds, “and enabled us to reduce our dependence on our balance sheet, redeploy our capital and prudently manage our risk.” Freddie’s settled offerings come at a time when poor performance of multifamily mortgages, along with a continued difficulty in the retail property market, has led to a record 2.07% delinquency rate among commercial mortgage-backed securities, according to data released in mid June by Fitch Ratings. The ratings agency said declining performance, particularly in oversupplied markets, as well as in secondary and tertiary markets, pushed the multifamily delinquency rate to 4.55%, the highest of all property types. Multifamily properties are highly susceptible to default in CMBS during the current economic downturn, according to the rating agency. Overall multifamily delinquency rate aside, Freddie’s multifamily pass-throughs are hot, if the investor response is any indication. Research released late last week by Bank of America Merrill Lynch, which probed relative value trends in the agency passthrough market, seems to put the investor hype in perspective. Merrill Lynch noted the 30-year coupon stack appears as fairly priced as it has “in a long time,” while fixed income strategists looking into 15-year coupons favored 5.0s, which “continue to look quite rich versus other coupons.” Write to Diana Golobay. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.