Freddie Mac is in the market with its fourth risk-sharing transaction of the year.

The government-sponsored enterprise is offering $425.6 million of Structured Agency Credit Risk 2015-HQ2 notes offloading a portion of the credit risk on $30.3 billion of mortgages that it insures to private investors.

STACR are general obligations of Freddie Mac, but payment of interest and principal is linked to the performance of a reference pool of 30-year, fixed-rate single-family mortgages that the company acquired between January and September 2013. The loans were made to consumers who borrowed between 80% and 95% of the purchase price of their homes.

Unlike Freddie's previous transaction, completed in April, this one measures credit performance using a fixed definition of severity, rather than actual losses incurred on the loans. If a loan in the reference pool becomes more than 180 days delinquent, Freddie assumes it is going to default and that it will recover a fixed percentage of the principal; it then deducts amount it expects to lose from STACR holders' principal.

The earlier deal is the only one offering exposure to actual losses; investors in that deal do not lose their principal unless one of the loans in the reference pool actually defaults. This is something Freddie had said investors expressed a preference for. However, there were some rumblings from investors about the way loan modifications were treated in that deal.

Another recent innovation that Freddie has maintained in the latest deal is that it offers exposure to the first losses in the reference pool. Buyers of the M3 tranche will absorb the first 100 basis points of losses; the M2 tranche is the next in line to absorb losses, followed by the M1 tranche. Freddie will retain a portion of each tranche and will hold the senior loss risk in the capital structure.

"This is our fourth STACR offering out of an expected six to eight this year," said Mike Reynolds, Freddie Mac vice president of credit risk transfer. "STACR has gained momentum in the market so far this year, and we hope to continue to see new investor participation in each transaction."

Barclays and Nomura will serve as co-lead managers and joint bookrunners. BNP Paribas and Morgan Stanley are co-managers, and Multi-Bank Securities Inc. is a selling group member.

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