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Freddie Mac Introduces New Index Lock Offering Designed to Mitigate Coupon Volatility

September 4, 2013

Freddie Mac is introducing a market-leading, new option that offers Program Plus® and TAH Sellers and any of their borrowers who have had a Capital Markets ExecutionSM (CME) loan purchased by Freddie Mac within the last 18 months, additional flexibility and reduced documentation in completing the rate-lock process for CME loans.

The primary benefits of this new Index Lock process to eligible borrowers include:

  • Reduces coupon volatility during underwriting by allowing the borrower to lock the treasury index at any point in the process, helping reduce debt service volatility and ultimately proceeds volatility
  • Provides the opportunity to lock the treasury index upfront without completion of a preliminary underwriting package

This new option applies only to a single identifiable asset (nontransferable) with loan size $50 million or less and can be either a refinance or an acquisition transaction. The Index Lock is an application, not a commitment and includes a 90-day lock term. The following additional parameters also apply:

  • Standard application (10bps)
  • 2% Good faith deposit (S/S retained)
  • Standard breakage fees

Index Lock Process

If a Seller/Servicer wishes to lock the Treasury Index on behalf of their borrower, they must identify an asset, request a UPB, complete and submit the applicable LST, send it to production for a quote, sign and return the Index Lock Application. The Treasury Index can then be locked within hours of receipt of a completed LST and application form, without having to submit a preliminary underwriting package.

Following the execution of the Index Lock, borrowers will also continue to have the option to complete either the Early Rate-Lock process to either lock the spread quickly (preliminary underwriting package should be delivered within 15 days), or follow our Standard Delivery execution to lock the spread at completion of full underwriting (to be delivered within 45 days). If the borrower chooses Early Rate-Lock, they will know their all-in-rate after circle brief approval. If the borrower chooses the Standard Delivery process, they will know their all-in-rate after commitment.

Term Sheet, FAQ and Additional Resources Now Available

To provide you with additional guidance on how, when and why to use this new Index Lock option, we have developed an Index Lock Term Sheet, Index Lock FAQ and Treasury Index Volatility Chart. We have also scheduled web-based training that will provide more details on reasons to use Index Lock, as well as flexible variance parameters and structured breakage arrangements that we have instituted based on what stage of the ERL or standard delivery process breakage occurs. Please register for one of the following two sessions.

Date: Wednesday, September 11, 2013
Time: 3:30 p.m to 4:30 p.m.ET
Session number: (1 of 2)
Register for September 11 Session

Date: Monday, September 16, 2013
Time: 3:00 4:00 p.m.
Session number: (2 of 2)
Register for September 16 Session

For more information, contact your Freddie Mac production or underwriting representative.

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