Freddie Mac is now securitizing a portion of the risk connected to multifamily mortgages during the aggregation period.

The government-sponsored enterprise is offering multifamily aggregation risk transfer certificates, Series 2017-KT01 (KT Certificates), which will be backed exclusively by multifamily mortgage loans that are awaiting sale into K-Series securitizations. This first offering of $1 billion in KT Certificates is expected to settle on or about Feb. 16.

KT Certificates are designed to transfer a portion of the credit risk associated with eligible multifamily mortgage loans, prior to sale into K-Series securitizations, to certain investors.

On the settlement date, Freddie Mac will sell to the FMPRE 2017–KT01 Multifamily Aggregation Risk Transfer Trust (KT Trust) approximately $1 billion in eligible mortgage loans. During a 32-month revolving period, Freddie will purchase mortgage loans from the KT Trust for sale into K-Series securitizations and replace them with additional eligible mortgage loans.

What are K Certificates?

Multifamily K Certificates are regularly issued, structured pass-through securities backed by recently originated multifamily mortgage loans. K-Deals feature a range of investor options with stable cash flows and a structured credit enhancement. K-Deals include guaranteed senior and interest-only classes. The related underlying private-label trust includes unguaranteed mezzanine, subordinate, and interest-only bonds.

Source: Freddie Mac

"We are continuously developing better ways to enhance the scope of our lending and securitization platforms in order to meet market demand, shield taxpayers from credit risk, and ensure Freddie Mac’s commitment to providing market liquidity," said Robert Koontz, Freddie Mac vice president, multifamily capital markets, in a release. “This transaction, the first of its kind by Freddie Mac, underscores this commitment.”

The KT Trust will issue Class A, B, C, and D Certificates. Freddie Mac will guarantee timely payment of interest, reimbursement of realized losses, and ultimate repayment of principal on the Class A Certificates but will not guarantee the Class B, C, or D Certificates. Freddie Mac expects to purchase the Class D Certificates and a portion of the Class A Certificates.