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In the secondary markets the Agencies are doing deals, laying groundwork for a single security, and transferring credit risk away from taxpayers to willing buyers.
On September 21, Freddie Mac priced approximately $725 million in K Certificates (K-1507 Certificates), which are expected to settle on or about September 27, 2018. The K-1507 Certificates are backed by corresponding classes issued by the FREMF 2018-K1507 Mortgage Trust (K-1507 Trust) and guaranteed by Freddie Mac. The K-1507 Trust will also issue certificates consisting of the Class X2-A, X2-B, B, C and R Certificates, which will not be guaranteed by Freddie Mac and will not back any class of K-1507 Certificates.
On the 25th, Freddie priced a K-C Series offering of approximately $912 million in K Certificates (K-C02 Certificates), which are expected to settle on or about September 27, 2018. The K-C02 Certificates are backed by a majority of 7-year, fixed rate loans that feature longer than typical periods of reduced prepayment penalties before maturity.
On September 14, Freddie Mac announced the pricing of the SB53 offering, a multifamily mortgage-backed securitization backed by small balance loans underwritten by Freddie Mac and issued by a third-party trust. The company expects to guarantee approximately $530 million in Multifamily SB Certificates, which are anticipated to settle on or about September 25, 2018. Freddie Mac Small Balance Loans generally range from $1 million to $6 million and are backed by properties with five or more units. This is the ninth SB Certificate transaction in 2018. Freddie Mac is guaranteeing four senior principal and interest classes and one interest only classes of securities issued by the FRESB 2018-SB53 Mortgage Trust. Freddie Mac is also acting as mortgage loan seller and master servicer to the trust. In addition to the five classes of securities guaranteed by Freddie Mac, the trust will issue certificates consisting of Class B and Class R Certificates, which will not be guaranteed by Freddie Mac and will be sold to private investors.
Also on the 14th, Freddie priced a new $1.1 billion offering of multifamily mortgage-backed Structured Pass-Through K-Certificates, which are expected to settle on or about September 26, 2018. K-Deals are part of the company’s business strategy to transfer a portion of the risk of losses away from taxpayers and to private investors who purchase the unguaranteed subordinate bonds. K Certificates typically feature a wide range of investor options with stable cash flows and structured credit enhancement.
On September 6th, Fannie Mae completed its first Credit Insurance Risk Transfer Transaction of 2018 on over $11 Billion of Multifamily Loans, part of their ongoing effort to reduce taxpayer risk by increasing the role of private capital in the multifamily mortgage market. This transaction transferred $166 million of risk to seven reinsurers and insurers, representing the largest amount of credit risk transferred in a multifamily CIRT transaction. The covered loan pool for the transaction consists of 1,106 loans for 1,111 multifamily properties acquired by Fannie Mae from October 2017 through January 2018. Each loan has an unpaid principal balance of $30 million or less. With CIRT 2018-M01, which became effective August 23, 2018, Fannie Mae will retain risk on the first 225 basis points of loss on the $11.1 billion covered pool of loans. Reinsurers will cover the next 150 basis points of loss. Once the pool has experienced 375 basis points of losses, the credit protection will be exhausted and Fannie Mae will be responsible for any further losses.
On September 11th, Fannie Mae announced an offering of New Issue 5-year Benchmark Notes due September 12, 2023. The settlement date is September 14, 2018 and the payment dates are each March 12 and September 12 beginning March 12, 2019. The deal will have an issue size of $2 billion, a coupon of 2.875%, and a price of 99.590 yielding 2.964%.
Also on the 11th, Fannie Mae priced a $857.2 Million Multifamily DUS REMIC (FNA 2018-M12) under Its GeMS Program, its 8th in 2018. The M12 provides investors with the opportunity to invest in a 12-year, fixed-rate, call-protected tranche, a response to more borrower demand for longer-term lending as we see a flattening in the yield curve. All classes of FNA 2018-M12 are guaranteed by Fannie Mae with respect to the full and timely payment of interest and principal.
Looking at the rates, the U.S. 10-year closed +2bps to 3.16% despite heightened geopolitical uncertainty (normally decreasing rates) as President Trump stated that Saudi Arabia will face “severe punishment” if it is proven responsible for the disappearance of Washington Post columnist Jamal Khashoggi, who vanished after visiting the Saudi consulate in Turkey. Saudi Arabia has denied any involvement in his disappearance. Saudi rhetoric has threatened any sanctions on Saudi Arabia would hurt the U.S. economy, though America now imports less Saudi oil than in the past due to renewable energies and fracking. As far as strict economic news went, Retail sales for September drastically missed expectations. The silver lining is Core sales, which factor into GDP figures were up 0.5%, which will factor favorably for Q3 real GDP growth. Finally, the Treasury Budget for September showed a surplus of $119.1 billion versus a surplus of $7.9 billion for the same period a year ago. The budget deficit for fiscal 2018 totaled $779.0 billion versus $665.8 billion in fiscal 2017.
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