DBRS Assigns Provisional Ratings to Structured Agency Credit Risk Debt Notes, Series 2015-DN1

DBRS, Inc. (DBRS) has today assigned the following provisional ratings to the Structured Agency Credit Risk Debt Notes, Series 2015-DN1 (STACR 2015-DN1) notes (the Notes) issued by Freddie Mac (the Issuer):

-- $200.0 million Class M-1 at A (sf)
-- $200.0 million Class M-1F at A (sf)
-- $200.0 million Class M-1I at A (sf)
-- $200.0 million Class M-2 at BBB (sf)
-- $200.0 million Class M-2F at BBB (sf)
-- $200.0 million Class M-2I at BBB (sf)
-- $400.0 million Class M-12 at BBB (sf)

Classes M-1F, M-1I, M-2F, M-2I and M-12 are Modifiable and Combinable STACR Notes (MAC Notes). Holders of the Class M-1 or M-2 notes can exchange all or part of such classes for the related classes of MAC Notes and vice versa. Classes M-1I and M-2I are interest-only MAC Notes.

The A (sf) and BBB (sf) ratings reflect 3.50% and 2.50% of credit enhancement, respectively. Other than the specified classes above, DBRS does not rate any other classes in this transaction.

The Notes represent unsecured general obligations of the Issuer. The Notes are subject to the credit and principal payment risk of a certain reference pool (the Reference Pool) of residential mortgages held in various Freddie Mac-guaranteed mortgage-backed securities. Cash flow from the Reference Pool will not be used to make any payment to the STACR 2015-DN1 noteholders; instead, Freddie Mac will be responsible for making monthly interest payments at the note rate and periodic principal payments on the Notes in accordance with the actual principal payments it collects from the Reference Pool. Furthermore, writedowns to the STACR 2015-DN1 Notes are not tied to the actual cumulative losses on the Reference Pool. Rather, they are calculated based on the occurrence of credit events (generally defined as delinquency of 180+ days, short sale, deed in lieu, sale of mortgage during the foreclosure process and real estate-owned) and a predetermined set of loss severities.

The Reference Pool consists of 121,129 30-year fully amortizing first-lien fixed-rate mortgages underwritten to a full documentation standard with original loan-to-value ratios greater than 60% and less than or equal to 80%. Payments to the Notes will be determined by the credit performance of the Reference Pool.

The originators for the Reference Pool are Wells Fargo Bank, N.A. (Wells Fargo, 12.7%), JPMorgan Chase Bank (JPMCB, 5.0%) and various other originators, each comprising less than 5.0% of the Reference Pool.

The loans in the Reference Pool will be serviced by Wells Fargo (12.7%), JPMCB (5.0%) and various other servicers, each comprising less than 5.0% of the Reference Pool. Deutsche Bank Trust Company Americas will act as the Global Agent. Freddie Mac will act as the Master Servicer.

DBRS notes the following strengths and challenges for this transaction:

Strengths:
-- Seller (or Lender)/Servicer approval process and quality control platform
-- Well-diversified Reference Pool
-- Strong structural protections
-- Strong alignment of interest
-- Pre-defined loss severity schedule
-- Extensive performance history

Challenges:
-- Unsecured obligation of Freddie Mac
-- Representation and warranties framework
-- Limited third-party due diligence

The above strengths, challenges and their mitigating factors are discussed in more detail in the related presale report.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are RMBS Insight 1.2: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology, Third-Party Due Diligence Criteria for U.S. RMBS Transactions, Representations and Warranties Criteria for U.S. RMBS Transactions and Legal Criteria for U.S. Structured Finance, which can be found on our website under Methodologies.

These ratings are endorsed by DBRS Ratings Limited for use in the European Union.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.