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KT Certificates

Multifamily Aggregation Risk Transfer Certificates (KT Certificates) are backed by multifamily mortgage loans that are awaiting sale into K-Series securitizations. KT Certificates are designed to transfer to certain investors a portion of the credit risk associated with eligible multifamily mortgage loans prior to sale into K-Series securitization.

Freddie Mac forms a single trust and sells to the trust eligible mortgage loans on the initial settlement date.  During a revolving period, Freddie Mac will from time to time purchase mortgage loans from the trust for sale into K-Series securitizations and replace the purchased mortgage loans with additional eligible mortgage loans.

On the closing date, the trust issues senior guaranteed, mezzanine and first loss certificates. Freddie Mac guarantees timely payment of interest, reimbursement of realized losses and ultimate repayment of principal on the senior guaranteed certificates but does not guarantee the mezzanine or first loss certificates. 

General Structure

The following description is based upon the terms of the Series 2017-KT01 Certificates, which were issued on February 16, 2017.  Future issuances of KT Certificates could have significantly different terms.

  • The FMPRE 2017-KT01 Multifamily Aggregation Risk Transfer Trust issued Class A guaranteed certificates and Class B, C and D unguaranteed certificates
  • Revolving period is scheduled to be 32 months
  • The Trust’s term is scheduled to be 36 months
  • Within 30 days of sale to the Trust, Freddie Mac may be required by the junior mezzanine investor to repurchase any mortgage loans not meeting the predefined eligibility criteria
  • In addition, Freddie Mac may also be required by the junior mezzanine investor to repurchase up to three percent of the eligible mortgage loans sold to the trust during the trust’s term for any reason
  • During the Trust’s term, Freddie Mac may from time to time repurchase at par eligible mortgage loans from the Trust
  • During the revolving period, collections of principal on and sales proceeds of eligible mortgage loans will be used by the Trust to purchase additional eligible mortgage loans from Freddie Mac
  • No later than the earliest to occur of (i) the scheduled end of the Trust’s term, (ii) 30 days after a termination event or (iii) 30 days after the exercise of a cleanup call, Freddie Mac will be required to repurchase all performing eligible mortgage loans at par and will auction off any defaulted mortgage loans. The sales proceeds will be used to pay down the certificates

Series 2017-KT01 Transaction Structure:

KT-Deal Certificate: Product Image

Benefits

  • Strong credit provided by the Freddie Mac guarantee of timely payment of interest, reimbursement of realized losses and ultimate repayment of principal on the Class A Certificates
  • Plus, the additional credit support of eligible mortgage loans underwritten to Freddie Mac’s portfolio standards
  • Diversification through pooled risk of many assets versus single asset risk
  • Transparency on collateral and deal information through the offering documents
  • Strength of a Freddie Mac credit review based on decades of strong credit management and underwriting experience

 

Additional Resources


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