Freddie Mac · OTC:FMCC
Freddie Mac — Investor Day (2018)
43 slides from Freddie Mac's investor day presentation, 2018
Slide 1: FHFA's Goals for Enterprise RPL & NPL Sales and the Importance of MWDOB Participation
FHFA’s GOALS FOR ENTERPRISE RPL & NPL SALES AND THE IMPORTANCE OF MWDOB PARTICIPATION C O N F I D E N T I AL © Freddie Mac 1
Slide 2: FHFA's Goals for Enterprise NPL & RPL Sales
FHFA’s GOALS FOR ENTERPRISE NPL & RPL SALES FHFA’s goals for Enterprise Non-Performing Loan (NPL) and Re-Performing Loan (RPL) Sales NPL sales reduce the number of seriously delinquent loans held in portfolio, reducing taxpayer losses and transferring credit risk to the private markets. NPL sale
Slide 3: Freddie Mac's NPL Sales Program
FREDDIE MAC’S NPL SALES PROGRAM Program Overview NPLs are generally one year or more delinquent. Purchasers of Enterprise NPLs are subject to servicing and reporting requirements published by FHFA, which have been enhanced over time. Freddie Mac conducted the first Enterprise Pilot NPL Sale in
Slide 4: Freddie Mac's RPL Sales Program
FREDDIE MAC’S RPL SALES PROGRAM Freddie Mac’s RPL Sales Program RPLs were NPLs that have since been modified or self-cured to become current or sub-performing loans. Freddie Mac completed their first RPL Sale in May 2016, selling approximately $292 million in unpaid principal balances (UPB) of s
Slide 5: The Importance of MWDOB Participation
THE IMPORTANCE OF MWDOB PARTICIPATION MWDOB Participation 100% of Freddie Mac’s EXPO® pools have been sold to non-profit or MWDOB buyers. Additionally, Freddie Mac has retained a MWDOB to provide market outreach and advisory services on every NPL sale, regardless of size. Freddie Mac and FHFA
Slide 6: NPL Sales Program Activity
NPL SALES PROGRAM ACTIVITIY FHFA monitors and reports on the Enterprises’ NPL sales programs FHFA published the 5th NPL Sales Report in June 2018. Combined NPL Sales Activity for Fannie Mae and Freddie Mac Through December 31, 2017 Loan Count at Settlement 90,921 loans Unpaid Principal Balance at
Slide 7: NPL Sales Program Activity Cont'd
NPL SALES PROGRAM ACTIVITY CONT’D The number of NPLs sold peaked in 2016 at 44 thousand loans, representing 22 percent of the total delinquent loans in the Enterprises portfolios at the start of the year. The Enterprises' Non-Performing Loan Sales Loan Count At Settlement, by Year 44K 40K 30K 26K 18
Slide 8: NPL Sales Program Activity – 2015 vs 2017
NPL SALES PROGRAM ACTIVITY – 2015 VS 2017 From 2015 to 2017 the number of Enterprise loans one or more years delinquent decreased by 55 percent. Number of Enterprise Loans Held in Portolio, One Year or More Delinquent, by Delinquency 200K 200K 48K 73K Delinquency 100K 90K 19K 5+ years 25K 79K 2 to <
Slide 9: NPL Sales Program Activity – Geographic Distribution
NPL SALES PROGRAM ACTIVITY – GEOGRAPHIC DISTRIBUTION New Jersey, New York and Florida accounted for 46 percent of NPLs sold through December 31, 2017, and 47 percent of the Enterprises’ NPLs prior to the start of the programmatic NPL sales in 2015. Geographic Distribution of NPL Sales - Top 10 State
Slide 10: NPL Sales Results – Loan Performance Post-Sale
NPL SALES RESULTS – LOAN PERFORMANCE POST-SALE Through December 31, 2017, 55 percent of all NPLs sold had been resolved. Twenty one percent of NPLs were resolved without foreclosure and 34 percent were resolved through foreclosure. Loan Outcomes Foreclosure NPL Sales to Avoidance Date Outcomes 0.1%
Slide 11: Freddie Mac's Seasoned Credit Risk Transfer (SCRT)
Freddie Mac’s Seasoned Credit Risk Transfer (“SCRT”) Terin Vivian C O N F I D E N T I AL © Freddie Mac 11
Slide 12: Freddie Mac Seasoned and Legacy Loan Activity
Freddie Mac Seasoned and Legacy Loan Activity Approximately $50 Billion from 2011 through August 2018 PCs - Fully Guaranteed Securitizations SCRT - RPL Senior/Sub R, M and H Pools Guaranteed Senior/ Non-guaranteed Subs $27.1 billion settled since 2011 $13.8 billion settled since Q4 2016 Primarily 12
Slide 13: SCRT Program Overview
SCRT Program Overview Launched pilot in Dec 2016 and have issued $14B over 8 transactions to Date » Cash Senior / Sub Securitization » Servicing to PSA which incorporates FHFA RPL sales requirements » Allows flexibility managing the retained portfolio balance sheet and both market and credit risk.
Slide 14: SCRT Structure Information
SCRT Structure Information Recent Offering Initial Class Principal Approximate or Initial Credit WAL Principal Window Deal Group Class Initial Class Initial Class Enhancement (years)(1) (months)(1) Coupon Notional Amount SCRT 18-3 H HT $640,946,000 3.000% 7.75% 7.77 1-325 SCRT 18-3 H HA $480,710,000
Slide 15: SCRT Historical Performance for All Groups
SCRT Historical Performance for All Groups All Groups 1 Month VPR 14 12 10 Rate % 8 6 4 2 0 SCRT 2016-1 SCRT 2017-1 SCRT 2017-2 SCRT 2017-3 SCRT 2017-4 SCRT 2018-1 SCRT 2018-2 All Groups Historical DQ60+ (1) 4 3 Rate % 2 1 0 SCRT 2016-1 SCRT 2017-1 SCRT 2017-2 SCRT 2017-3 SCRT 2017-4 SCRT 2018-1 SCR
Slide 16: SCRT Investor Types
SCRT Investor Types(1) Significantly expanded investor base; 44 senior and 33 credit investors in the last 2 years Guaranteed Certificates Non-Guaranteed Certificates Insurance Company Hedge Fund Insurance 5.60% 0.94% REIT 0.54% Company 1.50% Dealer 10.82% Dealer 18.09% Money Hedge Fund Manager 29.7
Slide 17: Freddie Mac's Seasoned Loans Structured Transaction (SLST)
Freddie Mac’s Seasoned Loans Structured Transaction (“SLST”) Jeff Willoughby C O N F I D E N T I AL © Freddie Mac 17
Slide 18: SLST Program
SLST Program Freddie Mac has closed four SLST transactions The related loans are primarily inconsistent pay RPLs and moderately delinquent NPLs Prior to 2018, SLST transactions followed a two-step process: Step 1: Whole loan sale via an auction subject to requirements set forth in a securiti
Slide 19: SLST 2018-1 Transaction Structure
SLST 2018-1 Transaction Structure (1) (1) The Class A Certificates were not offered at the time of closing. They were deposited into a REMIC and tranched sequentially into the Class A-1 Certificates and Class A-2 Certificates. Note: The Trust also issued a Class R Certificate, a Class RA Certificate
Slide 20: SLST Structure Information
SLST Structure Information Recent Offering Initial Class Principal Approximate Principal or Initial Credit WAL Deal Class Initial Class Window Initial Class Enhancement (years)(1) Coupon (months)(1) Notional Amount SLST 18-1 A-1 $261,041,764 3.500% 27.78% 5.08 1-120 SLST 18-1 A-2 $87,013,921 3.500%
Slide 21: Cashflowing Rate and Loss Severity
Cashflowing Rate and Loss Severity SLST (C1-11, D30, D60) SCRT & SLST Cashflowing Rate(1) Loss Severity(2) 90 50 80 45 40 70 35 60 30 50 Rate % 25 40 20 30 15 20 10 10 5 0 0 % DQ SCRT(C12+) SLST (C1-C11,D30,D60) % Delinquent borrower made payment % Borrower made payment on Portfolio (Assuming 50% DQ
Slide 22: TPMT 2017-FRE1: Over 80% Cashflowing Rate
TPMT 2017-FRE1: Over 80% Cashflowing Rate Delinquent Loans Cashflowing(1)(2) Current Loans Cashflowing(1)(2) Overall Cashflowing(1)(2) 120% 1.2 120% 1.2 120% 1.2 100% 1.0 100% 1.0 100% 1.0 80% 0.8 80% 0.8 80% 0.8 60% 0.6 60% 0.6 60% 0.6 40% 0.4 40% 0.4 40% 0.4 20% 0.2 20% 0.2 20% 0.2 0% 0.0 0% 0.0 0
Slide 23: Freddie Mac's Non-Performing Loan Sales
Freddie Mac’s Non-Performing Loan Sales Doug Jeffery C O N F I D E N T I AL © Freddie Mac 23
Slide 24: NPL Program's Offering Types: SPO & EXPO
NPL Program’s Offering Types: SPO & EXPO Freddie Mac’s NPL sales are comprised of 330 day delinquent loans No REO or current loans will be included in offering or settlement Loans will be sold servicing released. Buyers are able to chose their servicer pending Freddie Mac’s approval Extended T
Slide 25: NPL Program's Marketing, Qualification & Bid Process
NPL Program’s Marketing, Qualification & Bid Process Marketing is lead by one Broker/Dealer and one MWOB co-advisor To qualify, bidders need to provide: Non-Disclosure Agreement, Bidder Qualification Statement detailing the Bidding Entity, its Owners, Financiers and Capital Providers, Proo
Slide 26: Post-Sale Requirements & Other Items
Post-Sale Requirements & Other Items FHFA NPL Sales Requirements are required including the below highlights: Honor Foreclosure Alternatives and Modifications in flight Loss Mitigation Waterfall Encourage REO Sales to Owner Occupants and Non-profits Post-Sale monthly reporting is required
Slide 27: Freddie Mac's Servicing Capital Markets
Freddie Mac’s Servicing Capital Markets Bill Lyons C O N F I D E N T I AL © Freddie Mac 27
Slide 28: Servicing Capital Markets' Role in NPL & RPL Process
Servicing Capital Markets’ Role in NPL & RPL Process … about a year in advance of the transactions, SCM is consolidating the loans at servicers and custodians in preparations for transactions, scrubbing documents, data, and preparing packages for the offerings Freddie Mac Servicers Aggregation Servi
Slide 29: Servicing Capital Markets' Role in NPL Offerings
Servicing Capital Markets’ Role in NPL Offerings Legacy DILIGENCE PERIOD “SELLER” DURING Servicer WARRANTY PERIOD Pool 1 Purchaser 1 Pool 2 Purchaser 2 Pool 3 Pool 4 Purchaser 3 C O N F I D E N T I AL © Freddie Mac 29
Slide 30: Servicing Capital Markets' Role in RPL Offerings
Servicing Capital Markets’ Role in RPL Offerings Legacy Servicer “SELLER” DURING DILIGENCE PERIOD WARRANTY PERIOD SLST SLST TRUST POOL Interact with trust and purchaser’s asset manager in ongoing servicing oversight, guarantor oversight, and trust capacity “SELLER” DURING MANAGE 3RD WARRANTY PERIOD
Slide 31: Freddie Mac – We make home possible
FreddieMac We make home possible”
Slide 32: RPL Borrower Behavior: Lessons Learned from the Housing Crisis
RPL Borrower Behavior Lessons Learned from the Housing Crisis Sean Becketti
Slide 33: What did we think in the early stages of the crisis?
What did we think in the early stages of the crisis? Possibility of a 10-year, Japanese-style recession Tighter underwriting standards and higher transactions costs would permanently constrain prepayments “Shadow” inventory of foreclosed and soon-to-be foreclosed houses would limit house price
Slide 34: Prepayments are significantly lower than pre-crisis
Prepayments are significantly lower than pre-crisis Prepayments were ruthless pre crisis – a peak speed more than 60 CPR in the 2003 refinance wave. Post crisis, prepayments slowed down due to tightened underwriting standards and new regulatory requirements on the origination process (e.g., TRID
Slide 35: Housing supply has moved from oversupply to undersupply
Housing supply has moved from oversupply to undersupply Vacant housing over/undersupply (millions of units) 2.0 For-Rent Inventory (Millions) 1.5 For-Sale Inventory (Millions) 1.0 0.5 0.0 -0.5 -0.8 -1.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 So
Slide 36: U.S. new housing supply low relative to history
Prior to 2008, there was only one year when the U.S. added fewer housing units than in 2017 U.S. new housing supply low relative to history U.S. annual housing completions and manufactured home shipments (1000s) 3,000 3000 1982 only year prior to 2008 with fewer units 2,500 2500 than 2017 (1.2 milli
Slide 37: Home prices are now outpacing income
Home prices are now outpacing income U.S. House Price and Income Growth 12-month percent change 15% 10% House Prices 5% Income 0% -5% -10% -15% -20% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sources: House price index is U.S. Freddie Mac House Pri
Slide 38: Rising home prices help build equity
Rising home prices help build equity Total value of U.S. real estate held by households $Trillions 25 $25.4Trillion Value of Housing Stock 20 $15.2 Trillion 15 Home Equity 10 $10.2 Trillion 5 Single-family Mortgage Debt Outstanding 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2
Slide 39: Fears of strategic default were overblown
Fears of strategic default were overblown RPL borrowers survived the worst housing downturn either on their own or through the participation in HAMP/GSE modification programs. Mortgage default tends to associate with income loss regardless of debt-to-income ratio or home equity (JPMorgan Urban I
Slide 40: What type of modification works?
What type of modification works? HAMP and GSE mods are significantly different than pre-HAMP mods—but it took a lot of trial-and-error to get them right. » HAMP rolled out in 2009, then in 2013 GSEs introduced streamlined modification programs. In 2017, these programs were replaced with new GSE Fl
Slide 41: The re-default rates are much lower for HAMP mods than pre-HAMP mods
The re-default rates are much lower for HAMP mods than the pre-HAMP mods C O N F I D E N T I AL © Freddie Mac 41
Slide 42: Step rate shocks generated prepayments rather than defaults
Step rate shocks generated prepayments rather than defaults Step-rate mods experienced large payment shocks following rate resets. Due to the strong house recovery, there was no significant surge in re-default rates. Instead, payment shocks led to increases in voluntary prepayments around rate
Slide 43: Distressed borrowers exhibited a wide variety of payment behaviors
Distressed borrowers exhibited a wide variety of payment behaviors The payment rate of SLST collateral consistently outstrips the performing rate of SLST collateral as delinquent collateral consistently makes payments. The average cashflowing rate of the SLST delinquency collateral (D60+/FC/BK/R