Freddie Mac Guarantees REMIC Maturity

Freddie Mac is launching a new REMIC program that features innovations such as a guaranteed maturity to minimize extension risk in a rising rate environment and electronic trading capability to reduce the disparity between bid and offer prices.

The first Reference REMIC, expected on April 4, will total at least $2 billion, Freddie Mac said last week. The Reference REMIC series will continue with a quarterly schedule of offerings, with each tranche totaling at least $1 billion.

Reference REMICs will be backed by U.S. home mortgages through Freddie Mac's Gold PCs, and the PCs serving as collateral will be disclosed prior to pricing.

Freddie Mac said the new REMIC series includes features that have never before appeared in the REMIC market, including electronic, intraday pricing of securities. Reference REMIC securities will be the first REMICs available on TradeWeb, with electronic trading available in May, Freddie Mac said.

In addition, the REMIC series, which borrows features from Freddie Mac's Reference Notes program, will be issued on a regular, quarterly calendar. Freddie Mac said it would issue at least one, and no more than two, Reference REMIC securities each quarter.

The securities will be issued through a multitiered syndicate of dealers rather than a single dealer.

Daily closing prices will be posted by the lead managers to TradeWeb and the Bloomberg Terminal.

And the new REMICs will have a stated, final maturity, which limits extension risk for investors. That could be a key selling point in an environment where interest rates are expected to rise.

Already, Freddie Mac has experimented with guaranteed maturity classes on about $40 billion of securities backed by adjustable-rate mortgage loans.

The maturities are based on the reset period in the case of hybrid ARM loans, with the securities maturing after a five- or seven-year reset period.

In the case of fixed-rate loans, details of which will be made April 4, the maturity dates are expected to range between seven and 14 years.

Mark Hanson, vice president of mortgage funding at Freddie Mac, told National Mortgage News that Freddie Mac is trying to deepen the investor base for Freddie Mac REMICs. He said the REMIC market "may have lost some investors" due to the increasing complexity of current deals. The new Reference REMIC characteristics are designed to reverse that trend and reach investors outside of the traditional mortgage securities market.

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