Floating-Rate Prepayment Report, as of December 2021
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 December 2021. We look at prepayment speeds, lockout periods, seasoning and find that prepayments are generally highest when prepayment premiums are lowest and among the more seasoned loans.
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 December 2021, Freddie Mac has funded and securitized 5,479 floating-rate loans totaling over $138 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% starting in the third year through maturity).
Nearly all our floating-rate loans are either 7- or 10-year terms, making up 99% of floating-rate business. Borrowers are now favoring 10-year loan terms, representing 58% (by UPB) of floating-rate business, while 41% are 7-year. Over the past year, 10-year loans have gained favorability compared with 7-year loans. In the July 2021 iteration of this report, the breakout of 7- versus 10-year loans was essentially equal at 50% 7-year loans and 49% 10-year loans. Only 1% of these loans have a 5-year term, which is at the same level as July of 2021.