Freddie Mac, the government-controlled mortgage-finance company, issued $630 million of securities in its second sale of notes tied to the risk of homeowner defaults at a lower cost than in its initial offering.
The transaction includes $245 million of securities that Moody’s Investors Service grades Baa1 and Fitch Ratings ranks BBB-. Those notes were sold at floating yields of 1.45 percentage points more than the one-month London interbank offered rate, according to a person with knowledge of the deal. In the company’s July deal, the safest types of bonds it sold offered a spread of 3.4 percentage points.
U.S. regulators see sales of the debt by McLean, Virginia-based Freddie Mac (FMCC:US) and competitor Fannie Mae (FNMA:US) as a way to reduce the roles of the two taxpayer-backed companies and assess whether they are charging enough to guarantee their traditional mortgage bonds. The risk-sharing deals also resemble provisions in legislation introduced this year that would overhaul the $9.3 trillion U.S. mortgage-finance system. The bill, by Senators Bob Corker, a Republican from Tennessee and Democrat Mark Warner of Virginia, was praised by President Barack Obama.
A riskier, unrated $385 million portion of the Freddie Mac deal was sold today at a spread of 4.25 percentage points, according to the person, who asked not to be named because they weren’t authorized to speak publicly about the transaction. That compares with 7.15 percentage points for similar debt sold in July.
Fannie Mae completed its inaugural offering of $675 million of risk-sharing notes last month.
A rally in the securities sold earlier by the companies lost steam last week as Freddie Mac prepared to add to supply in the market. The riskier of bonds sold in its July deal fell to 117.3 cents on the dollar as of 2:38 p.m. in New York, from 118.5 cents on Oct. 30, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
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