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Fitch to Rate FREMF 2022-K149 Multifamily Mtg P-T Ctfs and Freddie Mac SPC Ser K-149; Presale Issued

09/20/2022 | 06:27am

Fitch Ratings has assigned expected ratings and issued a presale report for the FREMF 2022-K149 Mortgage Trust Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-149.


RATING ACTIONS


Entity / Debt


Rating


Freddie Mac 2022-K149


A-1


LT


AAA(EXP)sf


Expected Rating


A-1


ULT


AAA(EXP)sf


Expected Rating


A-2


LT


AAA(EXP)sf


Expected Rating


A-2


ULT


AAA(EXP)sf


Expected Rating


A-M


LT


NR(EXP)sf


Expected Rating


A-M


ULT


NR(EXP)sf


Expected Rating


X1


LT


AAA(EXP)sf


Expected Rating


X1


ULT


AAA(EXP)sf


Expected Rating


X3


LT


NR(EXP)sf


Expected Rating


Page


of 3


VIEW ADDITIONAL RATING DETAILS


FREMF 2022-K149 Mortgage Trust Multifamily Mortgage Pass-Through Certificates (FREMF 2022-K149):


$81,827,000b class A-1 'AAAsf'; Outlook Stable;


$927,881,000b class A-2 'AAAsf'; Outlook Stable;


$1,054,708,000ab class X1 'AAAsf'; Outlook Stable;


$1,054,708,000a class X2-A 'AAAsf'; Outlook Stable.


In addition, Fitch has assinged expected Unenhanced Ratings, which reflect the underlying creditworthiness absent the Freddie Mac guarantee, as well as Rating Outlooks to FREMF 2022-K149 of 'AAAsf'/Stable for classes A-1, A-2 and X1. Fitch has not assigned an Unenhanced Rating to class X2-A as that class is not guaranteed by Freddie Mac, and the expected 'AAAsf'/Stable Long-Term rating already reflects the underlying creditworthiness absent the guarantee.


Freddie Mac Structured Pass-Through Certificates, Series K-149 (Freddie Mac SPC K-149):


$81,827,000b class A-1 'AAAsf'; Outlook Stable;


$972,881,000b class A-2 'AAAsf'; Outlook Stable;


$1,054,708,000ab class X1 'AAAsf'; Outlook Stable.


Fitch has also assinged expected Unenhanced Ratings, which reflect the underlying creditworthiness absent the Freddie Mac guarantee, as well as Outlooks to Freddie Mac SPC K-149 of 'AAAsf'/Stable for classes A-1, A-2 and X1.


(a) Notional amount and interest only (IO).


(b) Guaranteed by Freddie Mac.


The FREMF 2022-K149 trust consists of both guaranteed and unguaranteed certificates. The underlying guaranteed certificates consist of the classes A-1, A-2, A-M, X1, XAM and X3. These certificates will be purchased by Freddie Mac to be deposited into the Freddie Mac SPC K-149 trust to back the Freddie Mac SPC K-149 certificates. $850,000,000 and $190,000,000 of the class A-2 and class A-M, respectively, have been pre-placed with Freddie Mac, as depositor and administrator for holders of the Freddie Mac WI Certificates, Series WI-K149. The expected ratings of classes A-1, A-2 and X1 consider the Freddie Mac guarantee and the underlying creditworthiness of the collateral. Freddie Mac is currently rated 'AAA'/'F1+'/Stable.


Fitch does not expect to rate the following classes of FREMF 2022-K149: $263,677,596 IO-class X2-B; $197,758,000 class A-M; $197,758,000 IO-class XAM; $65,919,596 IO-class X3 and $65,919,596 class D. Additionally, Fitch does not expect to rate the following classes of Freddie Mac SPC K-149: $197,758,000 class A-M; $197,758,000 IO-class XAM; $65,919,596 IO-class X3.


These expected ratings and Unenhanced Ratings are based on information provided by the issuer as of Sept. 19, 2022.


Transaction Summary


The certificates represent the beneficial ownership interest in the trust. The trust's primary assets are 44 fixed-rate loans secured by 43 multifamily properties and one healthcare property with an aggregate principal balance of approximately $1.32 billion as of the cutoff date. Freddie Mac SPC K-149 represents a pass-through interest in the corresponding class of securities issued by FREMF 2022-K149. Each Freddie Mac SPC K-149 security has the same designation as its underlying FREMF 2022-K149 class. All loans were acquired following origination from Freddie Mac seller servicers. The certificates follow a sequential-pay structure.


Fitch reviewed a comprehensive sample of the transaction's collateral, including cash flow analysis of 82.2% of the pool and asset summary reviews of 100% of the pool.


KEY RATING DRIVERS


Fitch Leverage: The pool's Fitch debt service coverage ratio (DSCR) and loan-to-value ratio (LTV) are 0.95x and 122.6%, respectively. The pool's DSCR is lower than the YTD 2022 and 2021 averages for Fitch-rated 10-year Freddie Mac transactions of 0.99x and 1.02x respectively. The pool's LTV of 122.6% is lower than the average LTVs for YTD 2022 and 2021 Fitch-rated 10-year Freddie Mac transactions of 132.7% and 136.4% respectively.


Pool Concentration: The top 10 loans represent 48.1% of the pool, which is lower than the YTD 2022 Fitch-rated average for 10-year Freddie Mac transactions of 53.2% and higher than the 2021 Fitch-rated average for 10-year Freddie Mac transactions of 47.2%. The pool's Loan Concentration Index score of 343 is lower than the YTD 2022 and 2021 Fitch-rated 10-year Freddie Mac transactions of 416 and 348, respectively.


Property Type Concentration: The pool is 90.8% secured by traditional multifamily properties, 6.7% secured by MHC properties and 2.5% secured by health care properties. The pool's health care concentration of 2.5% is higher than the average for YTD 2022 and 2021 Fitch-rated 10-year Freddie Mac transaction of 0.9% and 2.0% respectively. Health care properties have a higher probability of default in Fitch's multiborrower model than traditional multifamily properties, all else equal.


Freddie Mac Guarantee: The expected ratings of classes A-1, A-2 and X1 factor in added support via a guarantee from Freddie Mac. Freddie Mac is currently rated 'AAA'/ 'F1+'/Stable by Fitch. The certificates will, at all times, be rated at the higher of Freddie Mac's rating or the rating based on the underlying collateral without accounting for the guarantee.


RATING SENSITIVITIES


Factors that could, individually or collectively, lead to negative rating action/downgrade:


Declining cash flow decreases property value and capacity to meet its debt service obligations. The list below indicates the model-implied rating sensitivity to changes in one variable, Fitch net cash flow (NCF):


Original Rating: 'AAAsf';


10% NCF decline: 'AAsf';


20% NCF decline: 'A-sf';


30% NCF decline: 'BBBsf'.


Fitch has revised its global economic outlook forecasts as a result of the war in Ukraine and related economic sanctions. Downside risks have increased and, therefore, Fitch has published an assessment of the potential rating and asset performance impact of a plausible, albeit worse than expected, adverse stagflation scenario on Fitch's major structured finance and covered bond subsectors ('What a Stagflation Scenario Would Mean for Global Structured Finance').


Fitch expects the North American CMBS sector in the assumed adverse scenario to experience virtually no impact on ratings performance, indicating very few rating or Outlook changes. Fitch expects the asset performance impact of the adverse case scenario to be more modest than the most stressful scenario shown above, which assumes a further 30% decline from Fitch's NCF at issuance.


Factors that could, individually or collectively, lead to positive rating action/upgrade:


Fitch did not consider the implementation of positive stresses for this transaction as the rated classes are at the highest rating level and cannot be upgraded further. The presale report includes a detailed explanation of additional stresses and sensitivities on page 10.


Best/Worst Case Rating Scenario


International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.


USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10


Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by Deloitte & Touche LLP. The third-party due diligence described in Form 15E focused on a comparison and re-computation of certain characteristics with respect to each of the mortgage loans. Fitch considered this information in its analysis and it did not have an effect on Fitch's analysis or conclusions.


REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING


The principal sources of information used in the analysis are described in the Applicable Criteria.


REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS


A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.


A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.


ESG Considerations


Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg


Additional information is available on www.fitchratings.com


(C) 2022 Electronic News Publishing, source ENP Newswire

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