Portfolio Pricing & Capital Markets Targeted Affordable Housing Seller Workshop

Transcription

1 Portfolio Pricing & Capital Markets 2017 Targeted Affordable Housing Seller Workshop

2 Presenters David Senft Senior Director Investments & Advisory Peter Lillestolen Director Capital Markets

3 Session Agenda Multifamily Fundamentals Freddie Mac Multifamily Balance Sheet Management Pricing of Portfolio Products Capital Markets Word on the Street

4 Portfolio Pricing & Investments David Senft

5 Key Takeaways 1. Multifamily Investments & Advisory under Victor Pa is responsible for portfolio pricing, hedging, & research 2. Multifamily fundamentals continue to be strong especially in affordable housing due to supply & demand 3. We have a mission oriented investments strategy that includes deliberate utilization of our shrinking balance sheet for affordable housing 4. Our portfolio pricing of affordable products is quantitative & qualitative and considers ways/costs of laying-off market (securitization) & credit risks

6 Multifamily Supply Rising to Meet Demand Multifamily construction high but below levels from 1970s and 1980s Multifamily Permits & Starts (thousands) Multifamily Permits and Starts and Renter Households 1,200 1, MF Permits MF Starts Renter Households Renter Households (millions) Housing Units (millions) 2,500 2,000 1,500 1, Number of Single-family and Multifamily Housing Permits SF Permits MF Permits Permits to Household ratio 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Permits to Household ratio Source: U.S. Census Bureau Source: U.S. Census Bureau Stable period of multifamily construction seen from was actually a period of decreasing renter households Renter households increasing steadily since 2005 Level of current construction is well below the amount seen in the 1970s and 1980s Permits to household ratio falls short in recent years Total housing permits are below the pre-recession average Multifamily permits have eased in 2016 compared to 2015

7 Real Rents and Median Renter Income Real rents have been trending up, and as of 2015, median real rent is 13% higher than in In the mean time, real median renter income is 7% lower in 2015 than in As a result, the median rent that was below the affordable limits in early 2000s is now $62 higher than what the median renter can afford. 20.0% $ % $ % 5.0% $ % -5.0% -10.0% -15.0% -20.0% $ Difference btwn median rent and what is affordable to median renter % Change in real median renter income since 2000 % Change in real median rent since 2000 $- $(40.00) $(80.00) $(120.00) Sources: Freddie Mac, U.S. Census Bureau, American Community Survey

8 Very Low-Income Renters Face a Shrinking Supply of Affordable Housing Multifamily Rental Housing Supply by Affordability Category 6.6% 7.0% 7.6% 8.9% 10.4% 10.5% 5.9% 6.3% 6.7% 7.5% 8.8% 9.4% 32.0% 32.7% 33.1% 36.3% 37.0% 36.8% 55.5% 54.0% 52.5% 47.3% 43.7% 43.2% AMI: Under 50% AMI: 50%-80% AMI: 80%-100% AMI: 100%+ Source: Freddie Mac tabulations of American Community Survey microdata. Affordability thresholds are based on the AMI of all MSAs in the United States.

9 Portfolio Management & Balance Sheet Usage Freddie Mac Multifamily changed its strategy from Held for Investment to Held for Sale where 90% of purchases are securitized in K-Deals Though our balance sheet is shrinking, we continue to utilize it as an intermediate-term pipeline to support our mission with emphasis on affordable housing Therefore, a goal of Investments & Advisory is to seek opportunities to layoff risks such as market (PC securitizations) and credit (SCR & reinsurance) We pride ourselves on creativity and aggressively pricing loans with VLI

10 Portfolio Pricing Based on Economics of Exit Our approach is to price credit & market risk separately and consider all unique factors such as DCR/LTV, terms, geography, prepay & much more Bond CE: gfee is a function of expected losses & credit capital TEL: pool level securitization where front-end pricing based on expected gain on sale from bond proceeds & B-piece required yields; total economics includes aggregation period and gfee on senior bonds Taxable Cash: single loan securitization (PC) considering CRA demand and gfee that factors costs of laying off credit risk via SCR or reinsurance Tax Exempt Loans Taxable Loans Aggregate Pool A PC Single Loan B Gfee Gfee 3rd Party CE

11 Word on the Street: Capital Markets & TAH Risk Distribution Peter Lillestolen

12 Multifamily Mortgage Originations Multifamily Mortgage Originations (Billions) $350 $300 $250 $262 $280 $295 $200 $150 $100 $50 $ (E) 2017 (F) OTHER CMBS FANNIE MAE FREDDIE MAC LIFE INSURERS Sources: Freddie Mac 10-Ks, 10-Qs, FHFA Report to Congress, and Freddie Mac's internal reports, Fannie Mae 10-Ks, 10-Qs, FHFA Report to Congress, and Fannie Mae's Multifamily Monthly New Business Volumes, ACLI, Wells Fargo Securities LLC, Intex Solutions Inc., Mortgage Bankers Association and Freddie Mac internal research

13 Multifamily Credit Risk Transfer Programs Securitization is accomplished through offerings of K-Deals, SB-Deals and similar securitization transactions As of May 31, 2017, there has been approximately:» $192.6 billion of K-Deal issuance since the start of the program in 2009» $7.2 billion of SB-Deal issuance since the start of the program in 2015 In 2016, ~ 89% of Freddie Mac s multifamily mortgage purchases were designated for securitization In January 2017, Freddie Mac introduced its first aggregation period risk transfer deal, known as KT-Deal

14 Multifamily Securitization Program Volume (2009 May 31, 2017) $60 Execution Volume $50 Total UPB ($ Billion) $40 $30 $20 $10 $ Year 7-Year 5-Year Single Sponsor No-Subordination Floating Rate Seniors Housing Seasoned Q-Deal Supplemental >10-Year Small Balance Total UPB K-Deals Q-Deals SB-Deals TOTAL * $2.1 $6.4 $13.7 $21.2 $28.0 $21.5 $37.4 $51.7 $18.6 $200.6 $2.1 $6.4 $13.7 $21.2 $28.0 $21.3 $35.6 $47.3 $17.0 $ $0.2 $0.1 $0.5 $0.0 $ $1.7 $3.9 $1.6 $7.2 *

15 Multifamily Securitization Program Volume (2009 May 31, 2017) (cont d) Execution by Deal Type ¹ $90 $80 TOTAL UPB ($ BILLION) $70 $60 $50 $40 $30 $20 $10 $0 Deal Type Descriptor Description # of Deals Total UPB Total UPB $199,940,400, Year K-000 Series for fixed loans with various terms, mostly 10 year terms 62 $85,129,553,873 7 Year K-700 Series for fixed loans with 7 year terms 26 $32,788,794,643 5 Year K-500 Series for fixed loans with 5 year terms 4 $4,106,237,917 Single Sponsor K-ABC Series for Single-Sponsor loans, sometimes single asset 15 $15,176,795,592 No-Subordination K-P00 Series for portfolio loans, with no subordinate piece 3 $2,622,223,362 Floating Rate K-F00 Series for loans with floating rates of various terms 30 $39,561,560,734 Seniors Housing K-S00 Series backed by multifamily mortgages on senior properties 8 $5,607,802,665 Seasoned K-X00 Series for seasoned loans 2 $1,107,896,608 Supplemental K-J00 Series for supplemental loans 13 $3,359,356,195 >10 Year K-1500 Series for fixed loans with greater than 10 years 2 $2,072,283,655 Small Balance SB-00 Series for small balance loans, also known as the FRESB series 31 $7,229,748,730 Workforce K-W00 Series for workforce housing loans 2 $1,178,146,106 1 Excludes Q Deals * *

16 K-Deal Performance 2017 Q1 As of December 2016: 99.9% of the K-Deal loans are current (outstanding principal balance) There is one 60+ days delinquent loan (representing <3 bps of outstanding principal) Two loans are in special servicing (representing <5 bps of outstanding principal) 1,600 1,400 1,200 1,000 Freddie Mac (60+ Day) Fannie Mae (60+ Day) MF CMBS Market (60+ Day) ACLI (60+ Day) FDIC Insured Institutions (90+ Day) Delinquency Rates Freddie Mac has not realized any credit losses on our K-Deal guarantees ¹ 4.44% of the outstanding loan population (by outstanding principal) is on the Servicers watchlist ² Basis Points ¹ There has been $11.94 million in total losses realized by B Piece investors (representing <1 bp of total issuance) ² The respective Master Servicers maintain a watchlist for each securitization. Loans are added to and removed from the watchlist in accordance with criteria established by CREFC ³ Information presented in the table is as of January 2017 * *

17 Capital Markets Update 2016 K- & SB-Deal issuance totaled $51.2 billion, with a flat forecast for 2017 Fixed-rate K-Deal A2 spreads are 5 bps tighter on the year. Spreads widened recently on treasury rate movement and higher CMBS supply Floating-rate K-Deal Class A spreads tightened bps on the year thanks to higher LIBOR rates. Demand remains strong

18 Capital Markets Update (Cont d) 180 CMBS 10yr AAAs, Freddie 10yr A2s and DUS 10/9.5s Brexit 40 Election 20 10yr CMBS AAAs 10Yr A2s 10/9.5s Sources: Freddie Mac, JP Morgan

19 Investors Overview In K-Deals, the Investor base has grown significantly: K-Deal Investors by Type 1» 449 Investors historically, with 258 participating in 2016 Bank 53% Money Manager 38% Substantial Investor base growth has also occurred in the SB-Deals:» 130 Investors historically, with 115 participating in 2016» 95 new Investors in 2016 Hedge Fund 1% SB-Deal Investors by Type 1 Insurance Company/ Pension Plan 8% In 2014, Freddie Mac was added to Bloomberg Barclays Index helping to further increase Investor base Bank 60% Money Manager 25% 1 Data reflects Senior bond allocations YTD for deals closed through December 31, 2016 Hedge Fund 2% Insurance Company/ Pension Plan 13%

20 K-Deal Investor Participation 300 Investor Participation Investor Accounts Linear (Investor Accounts) A total of 258 accounts purchased K-Deal bonds in 2016, with an average of 26 different Investors on each deal

21 Financing Affordable Units Approximately 83% of the total eligible units financed by Freddie Mac in 2017 Q1 are affordable to low- or moderate-income families (100% of area median income (AMI) or below) 5% 3% 3% 5% 4% 6% 6% 4% 5% 5% 6% 6% 6% 8% 14% 13% 15% 14% 16% 14% 18% 9% 8% 17% % of Units Acquired 37% 41% 37% 39% 41% 39% 40% 39% 83% 24% 25% 26% 19% 20% 20% 16% 16% 14% 12% 16% 17% 13% 15% 12% 11% % AMI or less >50%-60% AMI >60%-80% AMI >80%-100% AMI >100%-120% AMI >120% AMI Note: The numbers above represent the percentage of affordable units at each AMI threshold. Totals may not add to 100% due to rounding.

22 Product Overview This product overview is not an offer to sell or a solicitation of an offer to buy any Freddie Mac securities. Offers for any given security are made only through applicable offering circulars and related supplements, which incorporate Freddie Mac s Annual Report on Form 10 K and certain other reports filed with the Securities and Exchange Commission. This document contains information related to, or referenced in the offering documentation for, certain Freddie Mac mortgage securities. This information is provided for your general information only, is current only as of its date and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information does not constitute a sufficient basis for making a decision with respect to the purchase and sale of any security and is directed only at, and is intended for distribution to and use by, qualified persons or entities in jurisdictions where such distribution and use is permitted and would not be contrary to law or regulation. All information regarding or relating to Freddie Mac securities is qualified in its entirety by the relevant offering circular and any related supplements. You should review the relevant offering circular and any related supplements before making a decision with respect to the purchase or sale of any security. In addition, before purchasing any security, please consult your legal and financial advisors for information about and analysis of the security, its risks and its suitability as an investment in your particular circumstances. The examples set forth above are for illustrative purposes only. Opinions contained in this document are those of Freddie Mac currently and are subject to change without notice. Please visit for more information.