Freddie Mac said Thursday that it will offer a new type of mortgage-related security to let investors take advantage of changing market rules.
The so-called Reverse Remic Giant PC securities are intended "to provide liquidity to the U.S. residential mortgage market and new options for investors," the McLean, Va., government-sponsored enterprise said. Creation of the securities will begin with March 30 Remic settlements.
The securities will recombine notes created by previous splits of Freddie's pass-through bonds into real estate mortgage investment conduits, or Remics, with classes that have differing reactions to changes in how fast the underlying loans are paid down, the company said.
In January the Securities Industry and Financial Markets Association decided to allow such recombined debt into the so-called to-be-announced market.
The TBA market is "the most liquid, and consequently the most important secondary market for mortgage loans," according to the trade group, which sets its rules.
"Historically, remaining tranches in Remic securities lacked the liquidity sought by investors," Mark Hanson, Freddie's vice president for mortgage funding, said in a press release. "Freddie Mac Reverse Remic securities provide a new alternative investment vehicle by converting them into Freddie Mac Giant PC securities."
The new securities will be eligible to participate in new Freddie resecuritizations, also known as collateralized mortgage obligations, and will be eligible for the TBA market if the original securities had also been included, the company said. In the TBA market, offers to buy or sell securities may be filled with debt that has a range of characteristics.