Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) plans to sell $966 million of bonds tied to the risk of homeowner defaults after a similar bonds issued earlier posted strong gains.
The new bond issue proposal comes amid legislation introduced this month by the leaders of the Senate banking committee to replace the government sponsored enterprises.
Risk sharing bonds
The risk-sharing mortgage bonds are designed to shift some of the risk of a housing crisis from Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) to the buyer of mortgage bonds. Such instruments are in line with legislation about the lenders being discussed in Congress. U.S. politicians are seeking to change the mortgage financing system in the United States so that the GSEs don’t bear the brunt of problems in a mass default situation.
Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) sold about $500 million worth of risk-sharing bonds back in July.
In September, Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) too followed the footsteps of brother-lender Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) by announcing the risk-sharing mortgage bonds to American investors. The offering was part of a plan from the Federal Housing Finance Agency to see the risks of the mortgage market spread more evenly across investors.
Fannie’s proposed issue last year came amidst private investors showing increasing preference towards accepting riskier debt, thanks to housing market experiencing rebound.
Freddie Mac soaring interest in risk sharing bonds
Ever since the GSEs started selling the risk-sharing bonds last year, the bonds have soared amid a housing recovery, tightened loan standards and demand for securities offering higher yields.
Jody Shenn of Bloomberg points out all three parts of a $1 billion Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) deal on Feb 6 have gained, with the most-junior portion rising Wednesday to almost 106 cents on the dollar.
Moreover, last week, the transactions continued to benefit from the increased presence of real money accounts adding positions in the sectors, particularly lower in the capital structure, notes the Bloomberg reporter citing Bank of America Corp (NYSE:BAC) analysts.
Freddie Mac’s offering next week may include $230 million of debt set to receive A credit grades from Fitch Ratings and Kroll Bond Rating Agency, as well as $391 million of riskier unrated notes.
Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s offering will be its fourth effort to shed taxpayer exposure to government guaranteed mortgage debt. Citing people familiar with the matter, Matthew Scully of Globalcapital points out the latest issue from Freddie will have the same structure as its February issuance and the collateral will likely be of similar quality.