Resources for EU and UK Institutional Investors
The enhanced due diligence obligations under Article 5 took effect on January 1, 2019. The information in this section is intended to support our current and future institutional investors located in the European Union or the United Kingdom in complying with the due diligence obligations, by mapping Multifamily Structured Credit Risk (MSCR) securities’ disclosed information to multiple sections of the Article 5 due diligence requirements.
LEGAL NOTICE
European institutional investors should be aware that Freddie Mac makes no representation or warranty concerning the accuracy or completeness of the information set forth herein as it relates to the due diligence requirements under Article 5 or otherwise. An EU or UK institutional investor must conduct its own independent review and make its own assessment of the completeness of the information set forth herein with respect to the due diligence obligations set forth in Article 5. EU or UK institutional investors should consult legal, tax and accounting advisors for assistance in assessing the information set forth herein and concluding that the due diligence obligations under Article 5 have been satisfied.
The following tables outline potentially relevant published information for certain sections of Article 5.
Article 5.1 – Verifications
Article 5.1(b): Credit granting based on sound and well-defined criteria and clearly established processes, with effective systems to apply criteria and processes
- Freddie Mac determines and applies various requirements and limitations to the loans it purchases. Additionally, it sets guidelines for lenders from whom Freddie Mac will purchase loans and monitors compliance for such specifications. Information about most of our underwriting and servicing requirements can be accessed through Freddie Mac’s Multifamily Seller/Servicer Guide.
- Loan servicing and acquisition standards for a transaction can be found in Appendix E of its Private Placement Memorandum, a copy of which is available under the Legal Documentation tab on the website for Multifamily investors.
- The MSCR reference obligations must meet eligibility criteria, including certain loan-to-value thresholds, and must have no underwriting or servicing defects. Additionally, in order to ensure that the loans we purchase satisfy Freddie Mac’s standards, we conduct internal periodic quality control reviews.
- An overview of Freddie Mac's MSCR program can be found in our MSCR Investor Presentation which can be found on the website for Multifamily investors.
Article 5.1(d): Retention of material net economic interest
- To align the interests of Freddie Mac and its investors, Freddie Mac retains at least 5% of every tranche of an MSCR transaction. Freddie Mac executes a risk retention letter at the closing of a transaction stating that it will hold on an ongoing basis at least 5% of every tranche. Please see the Risk Retention Letter available under the Legal Documentation tab on the website for Multifamily investors.
Article 5.1(e): Information required by Article 7 for "private" transactions
- For each MSCR transaction, Freddie Mac provides a loan-level file at the moment of issuance, as well as current monthly data. Users can access data files under Multifamily Securities Investor Access on the website for Multifamily investors.
- Documentation for an MSCR transaction can be found under the Legal Documentation tab on the website for Multifamily investors.
- To support investors filling out the reports required by Article 7, Freddie Mac provides a mapping file that links MSCR data fields with the investor report information to the template set out in Annex III to Commission Delegated Regulation (EU) 2020/1224 (which also forms part of UK domestic law by virtue of the EUWA) for reporting asset-level information for loans for the purpose of acquiring commercial real estate or secured by commercial real estate. Download Freddie Mac – MSCR to ESMA mapping file: Excel xls or PDF pdf. For information in regards to Annex 12, see the trustee reports from the related trustee.
Article 5.3 – Due Diligence Assessment
Article 5.3(a): Risk characteristics of the individual securitization position
The risk factors associated with a transaction are disclosed in the “Risk Factors” section of its Private Placement Memorandum, which is available under the Legal Documentation tab on the website for Multifamily investors.
- Information exhibiting the sensitivity of yields and other variables to different pre-payment simulations, credit events, or write-down amounts are disclosed in the “Prepayment and Yield Considerations” section of the Private Placement Memorandum, a copy of which is available under the Legal Documentation tab on the website for Multifamily investors.
Article 5.3(b): Structural features materially impacting the performance of the transaction
- The detailed structure of each MSCR security, including deal characteristics such as payment priority, credit support and delinquency triggers, definition of loss, credit events is described in the “Description of the Notes” section of the Private Placement Memorandum. A copy of the Private Placement Memorandum is available under the Legal Documentation tab on the website for Multifamily investors.
Article 5.4 – Monitoring and Stress Testing
Article 5.4(b): Monitoring and Stress Testing
- Freddie Mac makes available an extensive Multifamily Loan Performance Database. This provides information regarding the loans in Freddie Mac’s portfolio and may help investors build more accurate credit performance model in support of ongoing risk sharing initiative.
- Freddie Mac does not perform stress tests on cash flows, and collateral values are not provided by Freddie Mac publicly. Nevertheless, loan and deal level data sets are available for third-party vendors. Cash flow, credit and pre-payment analytics are supported by Bloomberg and IntexCalc, among others.
- A number of brokers/dealers are able to assist investors with any analytical and modeling requirements.
- Information exhibiting the sensitivity of yields and other variables to different pre-payment simulations, credit events, or write-down amounts are presented in the “Prepayment and Yield Considerations” section of the Private Placement Memorandum. A copy of the Private Placement Memorandum is available under the Legal Documentation tab on the website for Multifamily investors.
Simple-Transparent-Standardized (STS)
Securitizations are eligible for the STS designation only if each of the originator, sponsor and securitization special purpose entity (“SSPE”) were established in the European Union or, for the purposes of STS designation under the UK Securitization Regulation, the United Kingdom. Freddie Mac and each MSCR SSPE are established in the United States.
* PLEASE NOTE: References to third-parties, including vendors, are provided for information only; Freddie Mac does not specifically endorse any third-parties or their products/services. Freddie Mac is not responsible for the content or accuracy of external third-party websites.