Morningstar DBRS Assigns Provisional Credit Ratings to Freddie Mac STACR REMIC Trust 2024-HQA2

DBRS, Inc. (Morningstar DBRS) assigned the following provisional credit ratings to the Structured Agency Credit Risk (STACR) REMIC 2024-HQA2 Notes (the Notes) to be issued by Freddie Mac STACR REMIC Trust 2024-HQA2 (STACR 2024-HQA2):

-- $316.0 million Class A-1 at BBB (high) (sf)
-- $316.0 million Class M-1 at BBB (high) (sf)
-- $110.5 million Class M-2A at BBB (sf)
-- $110.5 million Class M-2B at BBB (low) (sf)
-- $221.0 million Class M-2 at BBB (low) (sf)
-- $221.0 million Class M-2R at BBB (low) (sf)
-- $221.0 million Class M-2I at BBB (low) (sf)
-- $221.0 million Class M-2S at BBB (low) (sf)
-- $221.0 million Class M-2T at BBB (low) (sf)
-- $221.0 million Class M-2U at BBB (low) (sf)
-- $110.5 million Class M-2AR at BBB (sf)
-- $110.5 million Class M-2AI at BBB (sf)
-- $110.5 million Class M-2AS at BBB (sf)
-- $110.5 million Class M-2AT at BBB (sf)
-- $110.5 million Class M-2AU at BBB (sf)
-- $110.5 million Class M-2BR at BBB (low) (sf)
-- $110.5 million Class M-2BI at BBB (low) (sf)
-- $110.5 million Class M-2BS at BBB (low) (sf)
-- $110.5 million Class M-2BT at BBB (low) (sf)
-- $110.5 million Class M-2BU at BBB (low) (sf)
-- $110.5 million Class M-2RB at BBB (low) (sf)
-- $110.5 million Class M-2SB at BBB (low) (sf)
-- $110.5 million Class M-2TB at BBB (low) (sf)
-- $110.5 million Class M-2UB at BBB (low) (sf)

Classes M-2, M-2R, M-2I, M-2S, M-2T, M-2U, M-2AR, M-2AI, M-2AS, M-2AT, M-2AU, M-2BR, M-2BI, M-2BS, M-2BT, M-2BU, M-2RB, M-2SB, M-2TB, M-2UB are Modifiable and Combinable STACR Notes (MACR Notes). Classes M-2I, M-2AI, and M-2BI are interest-only MACR Notes.

The BBB (high), BBB (sf) and BBB (low) (sf) ratings on the Notes reflect 3.00%, 2.65%, and 2.30% of credit enhancement, respectively.

Other than the specified classes above, Morningstar DBRS does not rate any other classes in this transaction.

STACR 2024-HQA2 is the 32nd transaction in the STACR HQA series. 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 (MBS). As of the Cut-Off Date, the Reference Pool consists of 99,420 greater-than-20-year fully amortizing first-lien fixed-rate mortgage loans underwritten to a full documentation standard, with original loan-to-value (LTV) ratios greater than 80%. The mortgage loans were originated on or after May 1, 2022, and were securitized by Freddie Mac between May 1, 2023, and July 1, 2023.

On the Closing Date, the trust will enter into a Collateral Administration Agreement (CAA) with Freddie Mac. Freddie Mac, as the credit protection buyer, will be required to make transfer amount payments. The trust is expected to use the aggregate proceeds realized from the sale of the Notes to purchase certain eligible investments to be held in a custodian account. The eligible investments are restricted to highly rated, short-term investments. Cash flow from the Reference Pool will not be used to make any payments; instead, a portion of the eligible investments held in the custodian account will be liquidated to make principal payments to the Noteholders and return amounts, if any, to Freddie Mac upon the occurrence of certain specified credit events and modification events.

This transaction includes a rated senior Class A-1 Note. The Class A-1 Note is subordinate to the Class A-H reference tranche. If the cumulative net loss test is met, the Class A-1 Note will receive principal payment based on a pre-determined schedule for the first 36 months, after which 100% of the senior reduction amount will be used to pay down the Class A-1 Note. In period 39, if the Class A-1 Note is outstanding and cumulative net loss test is met, the Class A-1 Note will be paid in full. If the cumulative net loss test is not met, the Class A-1 Note will be locked out from receiving principal payments, except its share of supplemental reduction amount.

The coupon rates for the Notes are based on the 30-Day average Secured Overnight Financing Rate (SOFR). There are replacement provisions in place in the event that SOFR is no longer available, please see the Private Placement Memorandum (PPM) for more details. Morningstar DBRS did not run interest rate stresses for this transaction, as the interest is not linked to the performance of the reference obligations (the Reference Obligations). Instead, the trust will use the net investment earnings on the eligible investments together with Freddie Mac's transfer amount payments to pay interest to the Noteholders.

The calculation of principal payments to the Notes will be based on actual principal collected on the Reference Pool. The scheduled and unscheduled principal will be combined and only be allocated pro rata between the senior and nonsenior tranches if the performance tests are satisfied. For STACR 2024-HQA2, the minimum credit enhancement test is not set to fail at the Closing Date. This allows rated nonsenior classes to receive principal payments from the First Payment Date, provided the other two performance tests--delinquency test and cumulative net loss test--are met. Additionally, the nonsenior tranches will also be entitled to the supplemental reduction amount if the offered reference tranche percentage increases to 5.50%.

The interest payments for these transactions are not linked to the performance of the Reference Obligations, except to the extent that modification losses have occurred. The Class B-1H, B-2H, and B-3H reference tranche coupon rate will be zero, which may reduce the cushion that rated classes have to the extent any modification losses arise. Additionally, payment deferrals will be treated as modification events and could lead to modification losses. Please see the PPM for more details.

The Notes will be scheduled to mature on the payment date in August 2044, but they will be subject to mandatory redemption prior to the scheduled maturity date upon the termination of the CAA.

The Sponsor and Administrator of the transaction will be Freddie Mac. Citibank, N.A. (rated AA (low) with a Stable trend and R-1 (middle) with a Stable trend by Morningstar DBRS) will act as the Indenture Trustee and Exchange Administrator. Wilmington Trust, National Association (rated A (high) with a Stable trend and R-1 (middle) with a Stable trend by Morningstar DBRS) will act as the Owner Trustee. The Bank of New York Mellon (rated AA (high) with a Stable trend and R-1 (high) with a Stable trend by Morningstar DBRS) will act as the Custodian.

The Reference Pool consists of approximately 9.5% and 2.5% of loans originated under the Home Possible® and HFA Advantage® programs, respectively. Home Possible® is Freddie Mac's affordable mortgage product designed to expand the availability of mortgage financing to creditworthy low- to moderate-income borrowers. Mortgage loans originated under HFA Advantage® are for borrowers that qualify under Housing Finance Agencies programs, with loan parameters primarily based off the Home Possible offering and provide lower mortgage insurance (MI) requirements.

If a Reference Obligation is refinanced under the Enhanced Relief Refinance Program, then the resulting refinanced Reference Obligation may be included in the Reference Pool as a replacement of the original Reference Obligation. The Enhanced Relief Refinance Program provides refinance opportunities to borrowers with existing Freddie Mac mortgages who are current in their mortgage payments but whose LTVs exceed the maximum permitted for standard refinance products. The refinancing and replacement of a Reference Obligation under this program will not constitute a credit event.

For this transaction, if a loan becomes delinquent and the related servicer reports that such loan is in disaster forbearance before sixth reporting period from the landfall of a hurricane, Freddie Mac will remove the loan from the pool to the extent the related mortgaged property is located in a Federal Emergency Management Agency (FEMA) major disaster area and in which FEMA has authorized individual assistance to homeowners in such area as a result of such hurricane that affects such related mortgaged property prior to the Closing Date.

The credit ratings reflect transactional strengths that include the following:
-- Seller (or Lender)/Servicer approval process and quality control platform.
-- Well diversified reference pool.
-- High-quality credit and loan attributes.
-- Strong alignment of interest.
-- Extensive performance history.

The transaction also included the following challenges:
-- High LTV loans.
-- Representations and Warranties (R&W) framework.
-- Limited third-party due diligence.
-- Counterparty exposure.

The full description of the strengths, challenges, and mitigating factors is detailed in the related presale report.

Morningstar DBRS' credit rating on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Interest Payment Amount and the related Class Principal Balance (for non-IO Notes).

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in US Dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (June 28, 2024) https://dbrs.morningstar.com/research/435279.

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (June 28, 2024),
https://dbrs.morningstar.com/research/435258
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024),
https://dbrs.morningstar.com/research/428623
-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (June 28, 2024),
https://dbrs.morningstar.com/research/435282
-- Representations and Warranties Criteria for U.S. RMBS Transactions (June 28, 2024),
https://dbrs.morningstar.com/research/435273
-- Legal Criteria for U.S. Structured Finance (April 15, 2024),
https://dbrs.morningstar.com/research/431205
-- Operational Risk Assessment for U.S. RMBS Originators (June 28, 2024),
https://dbrs.morningstar.com/research/435259
-- Operational Risk Assessment for U.S. RMBS Servicers (June 28, 2024),
https://dbrs.morningstar.com/research/435261

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.