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January 22, 2021

New Floating-Rate Prepayment Report

Freddie Mac Multifamily introduced the KF series of floating-rate K-Deals® to our securitization platform in October 2012. This offering provides borrowers with the ability to obtain financing indexed to lower, short-term rates along with more prepayment flexibility. Through November 2020, Freddie Mac has funded and securitized over 4,450 floating-rate loans totaling over $100 billion of original unpaid principal balance.

Unlike our standard, fixed-rate K-Deal where loans have a lockout period followed by defeasance, our floating-rate program provides borrowers with more flexible prepayment options. The majority of borrowers opt for a lockout period followed by a 1% prepayment premium on the outstanding balance of the loan. Other options include step-down prepayment premiums where each year the prepayment premium decreases (typically starting at 3% for the first year, 2% the second year and 1% in the third year through maturity).

While there are a number of loan product options, we find that roughly 83% of our originations choose a 1-year lockout followed by a 1% prepayment premium, an increase of 4% from last year's floating-rate prepay report. Roughly 6% have a 2-year lockout period followed by a 1% prepayment premium. The stepdown structure 3%-2%-1% is next most common at 4% of origination business. The remaining 7% of business has varying lockout periods followed by prepayment premiums, stepdown structures or a combination of the two.

In this report, we leverage our own data and focus on the voluntary prepayment activity of our floating-rate K-Deals over a 12-month period ending in November 2020. We look at prepayment speeds, lockout periods, seasoning and find that prepayments are generally highest when prepayment premiums are lowest and among the older vintages.

Read the full report.

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