Freddie Mac is working on a single-loan securitized product for a rollout later this year, an outgrowth of its Capital Markets Execution (CME) program.
The CME program—which bundles loans into a pool that is sold as securities—has worked somewhat like a traditional conduit execution. But this single-financing program would be similar to Fannie Mae’s Mortgage Backed Securities (MBS) program, which sells one individual loan as securities.
Freddie's program would give borrowers a new option while further diversifying its securitized product line.
“We’re close. I’d optimistically say that we’re looking at having something in 2009,” says David Brickman, vice president of multifamily CMBS/capital markets for the McLean, Va.-based government-sponsored enterprises (GSE). “We intend to come through with single-financing pass-through securities, and we’ll be moving in that direction in the near term.”
Freddie's program won’t exactly mirror the MBS product, however. Freddie Mac would set a certain threshold on the loan size of the product, and that figure will be a pretty substantial number.
The first adopters of Freddie’s new program would likely be the largest deals by the largest borrowers. Fannie Mae’s MBS product, on the other hand, is available for loans of more than $5 million. “If we did a $300 million financing with a large REIT, say, it could be multiple loans or one loan that’s cross-collateralized—that might lend itself to a pass-through securitization,” Brickman says.
For borrowers, the advantage in the as-yet-unnamed product would likely be a more customizable loan structure, though borrowers would still find the best pricing in the conventional CME execution. “A little more flexible structure, a slightly higher price maybe, would go to the single-loan securitization,” Brickman adds.
Freddie Mac continues to build out its CME program in other ways. The company is still mulling a seniors-housing securitized loan, which may lead to seniors housing-only pools. And the firm continues to work on securitizing its Targeted Affordable Housing as well as manufactured housing loans.
Freddie Mac is also thinking about introducing a securitized floating-rate product, though Brickman said that was further down the line. The company’s current floating rate deals are all held on their portfolio. Meanwhile, Fannie Mae is also working on making its structured ARM product available for an MBS execution later this year.
Both of the GSEs are under a federal mandate to shrink their portfolio holdings, necessitating this focus on securitized products.
Freddie Mac lenders applaud the move as further evidence of the company’s creativity. “That would give them the best of both worlds, to have a single transaction execution and a pool,” says Trent Brooks, a managing director at Boston-based CWCapital. “If you’re not going to grow your portfolio, you’re going to find alternative executions, which Freddie has proven to be very good at.”