Multifamily K Certificates are regularly-issued, structured pass-through securities backed by recently-originated multifamily mortgage loans. K-Deals feature a range of investor options with stable cash flows and a structured credit enhancement. K-Deals include guaranteed senior and interest only classes. The related underlying private label trust includes unguaranteed mezzanine, subordinate and interest only bonds.
Freddie Mac works diligently to manage the terms and credit quality of the underlying loans and the composition of the securities. In addition, there are strict prepayment restrictions on the underlying collateral which reduces the interest rate sensitivity of the K Certificates.
Freddie Mac Fixed Rate K-Series Structural Enhancement
We are making a programmatic change to the certificate structure on our fixed rate, multi-borrower K-series multifamily mortgage-backed securities. These K-series issuances will typically include two new classes of structured pass-through certificates (SPCs): Class A-M and Class XAM. More information can be found here.
Freddie Mac securitizes Multifamily loans via the K Certificate structure through the following steps:
- First, the loans are sold to a third-party depositor who deposits the loans into a third-party trust.
- Then private label securities backed by the loans are issued by the third-party trust.
- The subordinate bonds and mezzanine bonds, which are not guaranteed by Freddie Mac, are issued by the third-party trust and are privately offered to third-party investors.
- Freddie Mac purchases all the senior, guaranteed bonds issued by the third-party trust and securitizes the senior bonds via a Freddie Mac trust.
- The resulting Freddie Mac guaranteed structured pass-through certificates (“K Certificates”) are then publicly offered by Freddie Mac via placement agents.
K Certificates feature loans with various terms:
- K-000 Series backed by multifamily mortgages with various terms, but mostly 10-year terms.
- K-500 Series for loans with five-year terms.
- K-700 Series for loans with seven-year terms.
- K-F00 Series for loans with floating rates.
- K-P00 Series for seasoned loans from the portfolio.
- K-S00 Series backed by multifamily mortgages on seniors housing properties
- K-ABC Series utilizes letters instead of numbers to designate single loan or single borrower securitizations, such as K-SCT for the financing of Starrett City, a very large multifamily property loan in New York.
Strong credit provided by the Freddie Mac guarantee plus the additional credit support of an underlying multifamily mortgage pool underwritten to Freddie Mac’s portfolio standards.
Diversification through pooled risk of many assets versus single asset risk.
Call protection associated with the prepayment features of defeasance or yield maintenance.
Rated bonds, including guaranteed senior bonds privately rated at securitization as AAA, without taking into account the Freddie Mac guarantee; and non Freddie Mac- issued unguaranteed mezzanine bonds publicly rated at securitization and throughout the term.
Transparency and consistency on collateral and deal information through the offering documents.
Liquidity that is supported by repeatable and reliable issuance.
Guarantee of timely payment of interest and ultimate payment of principal on the guaranteed certificates.
- K Certificates Security Lookup – provides several different reports and information. (You will need to enter the K-Deal Series Number (e.g., K006), select the desired information option, and click on Submit).
- Historical Factors & Coupons – shows payment date, factor and coupon for each tranche. (You will need to enter the K-Deal Series Number (e.g., K006) and Class ID (e.g., A1), select Historical Factors and Coupons, and click on Submit.)
- Historical Certificate Reports – shows monthly performance statistics (delinquencies, prepayments and net operating income updates). (You will need to enter the K-Deal Series Number (e.g., K006), select Historical Certificate Reports, and click on Submit.)
- Offering Circular Supplements and Exhibits – (You will need to enter the K-Deal Series Number (e.g., K006), select Offering Circular Supplement, and click on Submit.)