Freddie Mac periodically securitizes re-performing single-family mortgage loans (”RPLs”) into either senior/subordinate securities (via SCRT and SLST programs) or Freddie Mac PCs. These are important tools for the company to effectively manage risk on its mortgage-related investments portfolio.
Freddie Mac RPL Programs: SCRT & SLST
SCRT securities are backed by seasoned, 12+ months clean-pay RPLs. The underlying RPLs were either previously securitized in Freddie Mac PCs or held by Freddie Mac in whole loan form. Each loan was modified under a GSE HAMP or non-HAMP modification program.
An SCRT deal typically uses a REMIC structure and includes Guaranteed Senior, Non-Guaranteed Subordinate, Interest-Only, Mortgage Insurance, and Non-Economic Residual Certificates. Freddie Mac guarantees the timely payment of interest and the payment of principal, including payment in full by the Stated Final Distribution Date on the Guaranteed Senior certificates. If the deal contains multiple groups of RPLs, the subordinate certificates are cross-collateralized across all groups. SCRT deals include RPLs with forborne UPB, and the RPLs are not serviced to the Freddie Mac Guide. In the SCRT structures Freddie Mac is the sponsor and trustee of the securitization trust, selects the servicer for the RPLs, and has oversight and audit rights with respect to such servicing. Freddie Mac will offer repo financing for certain SCRT Guaranteed Senior Certificates to approved counterparties.
SLST securities are generally backed by loans with less than 12 month clean pay and moderately delinquent RPLs. Each SLST transaction involves two offerings. To participate in an offering, potential bidders are required to be approved by Freddie Mac. The bidder qualification process is similar to our NPL Bidder and Servicer Qualification process. The first offering is an auction of the right to purchase 100% of the Subordinate Certificates, when issued. Bids are subject to a term sheet governing the auction and the subsequent securitization. Freddie Mac and the auction winner will work together to complete the securitization of the RPLs in accordance with the term sheet. The auction winner will have the option to conduct additional due diligence on the loans and review related documentation. The auction winner has the right to appoint the RPL servicer, subject to Freddie Mac approval. An asset manager, chosen by the auction winner and approved by Freddie Mac, will be engaged to oversee the servicing and management of the RPLs subject to a Pooling and Servicing Agreement (bidders will be allowed to review the agreement prior to bidding). The winner of the right to purchase the Subordinate Certificates must commit to retaining 100% of certain of the Subordinate Certificates for the initial 3 years post-closing. Freddie Mac will have the sole obligation to place the Senior Certificates (and may retain such certificates), effectively providing financing to the purchaser of the Subordinate Certificates, who will retain flexibility and control for customized management of the RPLs.
The second offering in an SLST transaction is the syndication of Guaranteed Senior Certificates issued pursuant to the term sheet. Freddie Mac has a 10-year Mandatory Repurchase Obligation on the Guaranteed Certificates and typically offers front and back sequential bonds. Freddie Mac will guarantee the timely payment of interest and the payment of principal, including payment in full by the Stated Final Distribution Date on the Guaranteed Senior certificates. Freddie Mac is the sponsor and trustee of the SLST trust and has oversight and audit rights with respect to the servicing of the RPLs. Freddie Mac will offer repo financing for certain SLST Guaranteed Senior Certificates to approved counterparties.
Freddie Mac's RPL PCs include:
Reinstated PCs (”R-Pools”)
Freddie Mac Gold PCs backed by non-modified fixed rate loans that were previously delinquent, have been reinstated and have been current for at least 4 months at issuance.
Modified Fixed Rate PCs (”M-pools”)
Freddie Mac Gold PCs backed by modified fixed rate loans that have been current for at least 6 months at issuance.
Modified Step Rate PCs (”H-pools”)
Freddie Mac Gold PCs backed by modified step rate loans that have been current for at least 6 months at issuance.
Additional information can be found on Freddie Mac's Mortgage Securities page.