Freddie Mac’s Single-Family credit risk transfer (CRT) program should see issuance volume of at least $25 billion in 2022, according to the company.
The issuances are expected to include primarily STACR (Structured Agency Credit Risk) and ACIS (Agency Credit Insurance Structure) transactions.
“Freddie Mac is responding to the capital requirements established by the Enterprise Regulatory Capital Framework (ERCF) with plans to optimize our CRT offerings in 2022. We expect a record year for STACR and ACIS issuance,” says Freddie Mac’s Mike Reynolds, vice president of Single-Family CRT.
The ERCF, which establishes risk-based and leverage capital requirements for Freddie Mac, requires Freddie Mac to hold significantly more capital than it did under the Conservatorship Capital Framework (CCF). For example, the pre-CRT capital requirement for the Freddie Mac STACR 2021-DNA7 reference pool is approximately 552 basis points under ERCF but would be approximately 312 basis points under CCF.
In addition to anticipated greater issuance volume, the company expects to introduce new slices of the M-1 tranche to its STACR on-the-run offerings in 2022.
“We anticipate a market for M-1A and M-1B, as well as the M-2 tranche among sophisticated buyers seeking investment-grade opportunities in agency risk,” comments Reynolds. “That may be of special interest to investors who expect to take advantage of any STACR buybacks in 2022 and who are looking for a way to redeploy their capital. We believe the M-1A tranche could bring new capital into the program.”
Overall, the company expects to partly offset 2022 issuances by $15 billion through paydowns, repurchases and call options. The company conducted its first-ever tender offer for STACR notes in 2021, retiring $1.6 billion original principal balance of notes that had substantially deleveraged (due to decreases in credit risk of related reference pools and increases in credit enhancement to STACR securities), and that no longer provided Freddie Mac with an economically sensible means of transferring credit risk.
Through its flagship offerings, Freddie Mac issued more than $18 billion across 10 STACR and 11 ACIS transactions in 2021.