Multifamily Structured Credit Risk Notes (MSCR Notes) are unguaranteed securities designed to transfer to investors a portion of the credit risk associated with eligible multifamily mortgages linked to a reference pool, thereby reducing U.S. taxpayers’ exposure to mortgage default risk. MSCR Notes offer capital markets investors an innovative way to add U.S. multifamily housing market exposure while benefiting from Freddie Mac’s industry leading underwriting and credit risk management standards.
In MSCR transactions, a third-party trust issues the unguaranteed notes and invests the proceeds realized from the sale in eligible investments. At closing, Freddie Mac enters into a collateral administration agreement and the capital contribution agreement with the trust and the indenture trustee. Freddie Mac pays a monthly credit premium to the trust and benefits from protection on defined credit or modification events on the reference pool. Freddie Mac will receive payments from the trust that otherwise would have been made to the noteholders to the extent certain defined credit or modification events occur on the mortgages in the related reference pool. The trust makes monthly payments of interest and principal to noteholders.