Freddie Mac's Latest STACR Transaction Rated by KBRA

Exploring KBRA's Preliminary Ratings for Freddie Mac's STACR

Freddie Mac has recently launched a new series in its Structured Agency Credit Risk (STACR) program, known as STACR 2024-DNA3. This initiative has attracted the attention of KBRA, which has assigned preliminary ratings to 24 distinct classes of notes from this innovative offering. With a total note value of approximately $642.5 million, the STACR 2024-DNA3 is a vital component in Freddie Mac's broader efforts to manage credit risk effectively.

Understanding the STACR 2024-DNA3 Notes

The latest series in the STACR program is designed to facilitate the sharing of credit risk associated with residential mortgages. The underlying loans in the STACR 2024-DNA3 exhibit loan-to-value (LTV) ratios that are higher than 60% but do not exceed 80%. As a result, the risk-sharing mechanism is structured to protect both Freddie Mac and investors in the notes.

Loan Characteristics and Borrower Profiles

The STACR 2024-DNA3 Reference Pool is composed of 78,140 mortgage loans, which as of the cut-off date, hold an outstanding principal balance of around $24.6 billion. Each of these loans is meticulously documented and primarily consists of fully-amortized, 30-year fixed-rate mortgages of prime quality. On average, the borrowers have an original credit score of 757, with a low debt-to-income (DTI) ratio of 39%. This strong profile indicates a robust capacity for repayment, which is beneficial for the notes' ratings.

KBRA's Comprehensive Rating Methodology

KBRA employs a sophisticated rating approach that involves a detailed analysis of the mortgage pool. By utilizing their proprietary KBRA RMBS Credit Model and the Residential Asset Loss Model (REALM), KBRA assesses not just the loan performance but also considers third-party loan file due diligence and cash flow modeling. This thorough examination ensures that the ratings reflect realistic potential outcomes based on the characteristics of the underlying assets.

The Significance of This Rating

The preliminary ratings assigned by KBRA are crucial not just for Freddie Mac but for the entire mortgage market, as they provide an early assessment of the transaction's potential. This initiative demonstrates Freddie Mac's ongoing commitment to innovative credit risk-sharing solutions that aim to bolster housing finance while managing overall risk exposure. By offering clear ratings, KBRA enables investors to make informed decisions regarding their participation in this transaction.

Key Trends in Credit Risk Sharing

Credit risk sharing transactions have become an integral part of Freddie Mac’s strategy to enhance stability within the housing finance system. Through innovative structures like STACR, Freddie Mac continues to push forward with risk management that can adapt to market fluctuations and investor appetite. The STACR 2024-DNA3 notes are set against a backdrop of increasing interest in mortgage-backed securities and structured finance products, appealing to a wide array of institutional investors.

Further Insights into KBRA and Its Role

As a respected credit rating agency, Kroll Bond Rating Agency (KBRA) provides invaluable insights and analysis that are essential for informing market participants about the potential risks and rewards associated with various financial products. Their ratings not only reflect the robustness of the underlying assets but also consider market conditions and regulatory requirements, making them a trusted source of information in the financial landscape.

Frequently Asked Questions

What is STACR 2024-DNA3?

STACR 2024-DNA3 is a series of notes issued by Freddie Mac as part of its credit risk sharing program to attract investment in mortgage securities.

What role does KBRA play in this transaction?

KBRA assigns preliminary ratings to the STACR 2024-DNA3 notes, helping investors assess the credit risk involved in this financial product.

What are the key characteristics of the loans in this pool?

The loans primarily consist of fully documented, 30-year fixed-rate mortgages with a robust average credit score and low debt-to-income ratio.

How does KBRA's rating methodology work?

KBRA utilizes various proprietary models and thorough analyses of loan performance, market conditions, and legal structures to assign ratings.

Why is credit risk sharing important for the housing market?

Credit risk sharing helps manage financial risk for lenders and promotes stability in the housing finance system, which is crucial for overall economic health.

About Investors Hangout

Investors Hangout is a leading online stock forum for financial discussion and learning, offering a wide range of free tools and resources. It draws in traders of all levels, who exchange market knowledge, investigate trading tactics, and keep an eye on industry developments in real time. Featuring financial articles, stock message boards, quotes, charts, company profiles, and live news updates. Through cooperative learning and a wealth of informational resources, it helps users from novices creating their first portfolios to experts honing their techniques. Join Investors Hangout today: https://investorshangout.com/

Disclaimer: The content of this article is solely for general informational purposes only; it does not represent legal, financial, or investment advice. Investors Hangout does not offer financial advice; the author is not a licensed financial advisor. Consult a qualified advisor before making any financial or investment decisions based on this article. The author's interpretation of publicly available data shapes the opinions presented here; as a result, they should not be taken as advice to purchase, sell, or hold any securities mentioned or any other investments. The author does not guarantee the accuracy, completeness, or timeliness of any material, providing it "as is." Information and market conditions may change; past performance is not indicative of future outcomes. If any of the material offered here is inaccurate, please contact us for corrections.