Freddie Gold Offers Defease Option

A $235 million Multifamily Gold PC with a defeasance option that increases the borrower's flexibility has been issued by Freddie Mac.The Gold PC is backed by 25 mortgages -- secured by 38 multifamily properties -- originated by Reilly Mortgage Group Inc. for a major real estate developer in the Southeast. The 30-year mortgages were structured with various special features, including the defeasance option. Defeasance is a process whereby mortgages are replaced by non-callable securities issued by the U.S. Treasury or government-sponsored enterprises. Other features of the $235 million Gold PC include the rights to substitute and to sell mortgaged properties. "Without these features, the sale or refinance of a mortgaged property would require the borrower to prepay the mortgage and the associated yield maintenance premium, which could be substantial," said H.L. Van Varick, vice president of Freddie Mac's Multifamily Negotiated Transactions Department. "Also, the investor in the Multifamily Gold PC potentially benefits from these features to the extent that they reduce the prepayment speed of the mortgages by providing an alternative to prepayment." Freddie Mac's rival GSE, Fannie Mae, recently announced a "one-stop" defeasance option for fixed-rate multifamily mortgages with a term of 10 years or less.