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Portfolio Pricing and Capital Markets2019 Optigo℠ TAH Workshop
PRESENTERS
DirectorMultifamily Securitization
Capital Markets
Peter Lillestolen
Senior DirectorPortfolio Pricing Capital
Markets
David Senft
Key Takeaways
▪ Capital Markets Recap
▪ Impact of the Capital Markets on Loan Pricing
▪ How is our pricing determined?
▪ How to get the best pricing?
2018 Capital Markets Recap
Financing Affordable Units93 percent of the eligible units we financed in 2018 supported low and moderate income
households earning at or below 120 percent of the area median income (AMI).
Multifamily Securitization Program Volume(2009 –2018)
Investors Overview 1 Data reflects Senior bond allocations YTD for deals closed through 12/31/2018
▪ Since the K-Deal program’s
inception in 2009, the investor base
has grown significantly
» 546 investors historically, with 241
participating in 2018
» Average of 29 different accounts per
transaction historically, 25 per
transaction in 2018
» 50 subordinate investors historically,
with 18 participating in 2018
Multifamily Delinquency Rates
0
10
20
30
40
50
60
70
80
90
BA
SIS
PO
INT
S
GSE Delinquency RatesFREDDIE MAC (60+ DAY)
FANNIE MAE (60+ DAY)
Our disciplined credit practices are one of the main drivers of the continued strong performance of our offerings
Notes: Freddie Mac does not report modified or forbearance loans in delinquency rates if the borrower is less than two monthly payments past due. Fannie Mae reports forbearance loans in their delinquency rates.Sources: Freddie Mac, Fannie Mae, American Council of Life Insurers (ACLI) Quarterly Investment Bulletin, FDIC Quarterly Banking Profile, TREPP (CMBS multifamily 60+ delinquency rate, excluding REOs) for periods prior to 3Q17, Wells Fargo CMBS research for 4Q17-4Q18 CMBS delinquency rates
0100200300400500600700800900
1,0001,1001,2001,3001,400
BA
SIS
PO
INT
S
Delinquency Rates
FREDDIE MAC (60+ DAY)
FANNIE MAE (60+ DAY)
MF CMBS MARKET (60+ DAY)
ACLI (60+ DAY)
FDIC Insured Institutions
LIHTC Performance
▪ Within the multifamily space,
LIHTC properties exhibited a
lower foreclosure rate than
conventional multifamily
properties
Impact of the Capital
Markets on Loan Pricing
Sample K-Deal Subordination
Source: Freddie Mac. The additional information can be accessed at mf.freddiemac.com/investors/presentations
Capital Markets Update▪ 2018 K- & SB-Deal issuance totaled $67.2B
▪ 2019 securitization volume is forecasted to remain flat
▪ A2 spreads on our most recent fixed rate deal, K-91, traded at 56 in April, tighter than K-90.
▪ Floating rate spreads remained relatively flat into the beginning of the year. KF60 A class traded at 49 in March
30
25 19 2123
3440 39
51 50 49
15
20
25
30
35
40
45
50
55
Dec
-17
Feb
-18
Mar
-18
May
-18
Jun
-18
Au
g-1
8
Sep
-18
No
v-1
8
Dec
-18
Feb
-19
Mar
-19
KF41 KF42 KF44 KF45 KF47 KF49 KF51 KF53 KF55 KF58 KF60
DM
(b
ps)
7 Yr Floating Guaranteed ClassesClass A
34
24 22 22
29
4248 56
54 5453
202530354045505560
Dec-17 Mar-18 May-18 May-18 Jul-18 Oct-18 Dec-18 Dec-18 Feb-19 Mar-19 May-19
KF40 KF43 KF46 KF46 KF48 KF52 KF54 KF56 KF57 KF59 KF61D
M (
bp
s)
10 Yr Floating Guaranteed ClassesClass A
38 40 39 39 3943
46 4650
53
51 50 49 50 5052
55 54 54 52
5963 63 65
6763
59 59 6056
59
6360 60 60
6569 69
7173
6966 66
67
62
30
35
40
45
50
55
60
65
70
75
80
Jun
-18
Jul-
18
Au
g-1
8
Sep
-18
Oct
-18
Oct
-18
No
v-1
8
No
v-1
8
Dec
-18
Dec
-18
Jan
-19
Mar
-19
Mar
-19
Ap
r-1
9
Ap
r-1
9
K77 K78 K79 K80 K81 K82 K83 K84 K85 K86 K87 K88 K89 K90 K91
Spre
ad (
bp
s)
10 Yr Fixed Guaranteed Classes
A1 A2 AM
Capital Markets Update
20
30
40
50
60
70
80
90
100
110
120
5/1/2017 8/1/2017 11/1/2017 2/1/2018 5/1/2018 8/1/2018 11/1/2018 2/1/2019 5/1/2019
CMBS 10yr AAAs, Freddie 10yr A2s and DUS 10/9.5s
10Yr CMBS AAAs FNMA 10/9.5s FRE 10Yr A2s
How Can You Follow
The Market?
Conventional vs. TAHAverage TAH loan spread vs conventional loan spread
1.00%
1.10%
1.20%
1.30%
1.40%
1.50%
1.60%
1.70%
1.80%
1.90%
2.00%
10 Yr Conventional vs. TAH Loan Spreads
Conventional Loan Spreads (1.35x/70%) TAH (1.35x/70%)
Loan Spread Movement
40
45
50
55
60
65
70
75
1.40%
1.50%
1.60%
1.70%
1.80%
1.90%
2.00%
10 Yr A2 Spreads vs 10 Yr Loan Spreads
Loan Spread A2 Spread
Index Lock
Source: Bloomberg
2.00%
2.20%
2.40%
2.60%
2.80%
3.00%
3.20%
3.40%
3/22/2018 5/22/2018 7/22/2018 9/22/2018 11/22/2018 1/22/2019 3/22/2019
10-Year TSY
Treasury Floor Update
▪ Effective As Of March 11th:
» The note rate will be equal to the Net Spread + Servicing + Greater of (i) the
“live” Treasury Rate or (ii) the Treasury Floor.
Type in how our pricing is determined?
Polling Question
Three Major Influences
Senior Management
Guide
Profitability CompetitionPRICING
Senior Management Guidance
Active involvement and longer term strategies
Profitability Targets: gain-on-sale & ROE thresholds
Goals: VLI, duty-to-serve and uncapped volume
Risk appetite & best means of transferring risk
Profitability
Fiduciary responsibility = can’t lose money
Better execution leads to better pricing
ProfitabilityInvestor Spread: required returns on our securities
Securitization successes – K-Deal, PC and ML
Credit Risk Transfer: costs of laying off risk
Utilizing other forms of CRT like SCR & reinsurance
GFee: our compensation for taking credit risk
Improved understanding of “true” risks
Decompositionof whole loan spreads
Decompositionof whole loan spreads
Competition
▪ Examine observable market trades
▪ Constantly analyzing win-loss data
▪ On the lookout for new products
▪ Deal & levels must make sense
» Want to win, but we have fiduciary duty
» Sometimes we should be wide, e.g. neg carry
» Sometimes competition is desperate, e.g. CRA
How to get the best
pricing?
How Can You Help?
▪ Fewer Deal Iterations
» Let’s start with our best foot forward on what the likely borrower
preference will be
▪ All Loan Level/Pool Level Details Up Front
» The more information we have up front, the quicker we can include all
parties and get pricing returned
How Can You Help?
▪ Competitive intel & where we need to be
▪ Good story as we believe in our mission
▪ Calling out risks & mitigates early on
▪ Being deliberate versus seeing what sticks
▪ Providing lead on potential exit investor
▪ Relationship that leads to more business
This product overview is not an offer to sell or a solicitation of an offer to buy any Freddie Mac securities. Offers forany given security are made only through applicable offering circulars and related supplements, which incorporateFreddie Mac’s Annual Report on Form 10-K and certain other reports filed with the Securities and ExchangeCommission. This document contains information related to, or referenced in the offering documentation for, certainFreddie Mac mortgage securities. This information is provided for your general information only, is current only as ofits date and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information does notconstitute a sufficient basis for making a decision with respect to the purchase and sale of any security and is directedonly at, and is intended for distribution to and use by, qualified persons or entities in jurisdictions where suchdistribution and use is permitted and would not be contrary to law or regulation. All information regarding or relatingto Freddie Mac securities is qualified in its entirety by the relevant offering circular and any related supplements. Youshould review the relevant offering circular and any related supplements before making a decision with respect to thepurchase or sale of any security. In addition, before purchasing any security, please consult your legal and financialadvisors for information about and analysis of the security, its risks and its suitability as an investment in yourparticular circumstances. The examples set forth above are for illustrative purposes only. Opinions contained in thisdocument are those of Freddie Mac currently and are subject to change without notice. Please visitwww.mf.FreddieMac.com for more information.