Freddie Mac plans to slash the bid/offer spreads on a new real estate mortgage investment conduit by paying mortgage syndicates to distribute the REMICs, a rare move in the mortgage market. For example, the agency hopes to reduce the bid/offer spread to two to three tics from five to eight tics on a REMIC with an average life of five years, according to Mark Hanson, Freddie Mac's v.p. of mortgage funding. Hanson said the move is a bid to become more competitive and ultimately to be able to pay higher prices for the loans the government-sponsored enterprise purchases as part of its mission.
Using a dealer syndicate instead of a single dealer to distribute the mortgage-backed securities will also be a first in the REMIC market, Hanson noted. He said the syndicates would be paid a percentage of the deal in basis points or tics, but declined to quantify how much. He also declined to name which firms would make up Freddie Mac's dealer group.
As part of its bid to increase liquidity, the new product will have tranche sizes of $1 billion versus traditional whole REMIC sizes ranging from $250 million to a few billion in size. "We know some large central banks are in need of large simple liquid products," Hanson said. And REMICs will be offered on a calendar schedule, at least one per quarter. The new REMIC's tranches will be triple-A rated with an average life of seven, 10 or 15 years. Having shorter maturities will help in attracting asset-backed investors, Hanson explained. They will also have fixed-rate TBA collateral.