DBRS Finalizes Provisional Ratings on Structured Agency Credit Risk Debt Notes, Series 2015-DNA3

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the Structured Agency Credit Risk Debt Notes, Series 2015-DNA3 (STACR 2015-DNA3) notes (the Notes) issued by Freddie Mac (the Issuer):

-- $200.0 million Class M-1 at A (high) (sf)
-- $200.0 million Class M-1F at A (high) (sf)
-- $200.0 million Class M-1I at A (high) (sf)
-- $440.0 million Class M-2 at BBB (sf)
-- $440.0 million Class M-2F at BBB (sf)
-- $440.0 million Class M-2I at BBB (sf)
-- $640.0 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 (high) (sf) and BBB (sf) ratings reflect 4.85% and 2.65% 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 Freddie Mac, the Issuer. The Notes are subject to the credit and principal payment risk of a certain reference pool (the Reference Pool) of residential mortgage loans held in various Freddie Mac-guaranteed mortgage-backed securities.

The Reference Pool consists of 140,585 30-year fully amortizing first-lien fixed-rate mortgage loans underwritten to a full documentation standard with original loan-to-value (LTV) 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.

Cash flow from the Reference Pool will not be used to make any payment to the STACR 2015-DNA3 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.

STACR 2015-DNA3 is the third below-80% LTV transaction in the STACR series where note writedowns are based on actual realized losses and not on a predetermined set of loss severities. The maturity dates for this transaction have been extended to 12.5 years compared with a ten-year maturity in prior STACR transactions with a predetermined set of loss severities.

The originators for the Reference Pool are Wells Fargo Bank, N.A. (Wells Fargo, 9.5%), US Bank, N.A. (US Bank, 6.8%) 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 (9.5%), US Bank (6.8%) and various other servicers, each comprising less than 5.0% of the Reference Pool. U.S. Bank National Association 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 alignment of interest
-- Strong structural protections
-- 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 rating 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.