On Wednesday, Freddie Mac announced its first re-performing loan (RPL) structured sale of 2017, a $292 million sale of a pool of seasoned loans from its mortgage investments portfolio. The pool of loans, currently being serviced by Select Portfolio Servicing Inc., includes loans with step-rate modifications and GSE loans modified under GSE proprietary modifications.
The first step in the sale is the sale of the loans through a “competitive” bidding process, executed on “the basis of economics, subject to meeting Freddie Mac’s internal reserve levels,” says the GSE. Following this, the loans’ purchaser must securitize the loans and retain the first loss subordinate tranche. Freddie Mac will guarantee and acquire the senior security issued from such securitization and simultaneously re-securitize such interest. The resulting securities will be the Freddie Mac SLST Guaranteed Securities, Series 2017-1.
Freddie Mac’s goal for this transaction is to manage and reduce risks associated with these loans, by firstly reducing liquid assets via “economically sensible transactions.” Other goals include providing flexibility to manage market and credit risk on these assets, promoting servicing that prioritizes non-foreclosure resolutions, including modifications, consider impacts to borrowers, neighborhood stability and the market, and improving the liquidity of these less liquid assets.
Freddie Mac has sold one $7 billion in nonperforming loans through these sales and has securitized $26 billion in RPLs. In addition, the GSE has transacted $2 billion in structured offerings.
In order to qualify for this transaction, the purchaser of these loans must be an investor with substantial experience managing “high-risk” mortgage loans as well as substantial experience in securitizations. Advisors to Freddie Mac on this transaction are Wells Fargo Securities, LLC, Credit Suisse Securities (USA) LLC and CastleOak Securities, L.P.