FEDERAL HOME LOAN MORTGAGE CORPORATION
Fitch Ratings has assigned the following ratings and Outlooks to five previously unrated classes from
RATING ACTIONS
Entity / Debt
Rating
STACR 2019-HQA3
B-1 35564XBD2
LT
BB+sf
New Rating
B-1A 35564XAD3
LT
A-sf
New Rating
B-1AI 35564XBG5
LT
A-sf
New Rating
B-1AR 35564XBF7
LT
A-sf
New Rating
B-1B 35564XAE1
LT
BB+sf
New Rating
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VIEW ADDITIONAL RATING DETAILS
Transaction Summary
Fitch has rated other classes within this transaction since deal close. The classes with ratings assigned today are subordinate classes in the transactions and were unrated at deal close. All of the transactions have performed well since closing with many of the previously rated bonds upgraded or assigned a Positive Rating Outlook.
KEY RATING DRIVERS
Higher Achievable Ratings than at Issuance
Since Fitch initially assigned ratings at issuance to this transaction, the subordinate bonds have materially better credit protection. This is driven by the increase in credit enhancement (CE) and lower losses. Since issuance, the subordinate bonds have de-levered (increased in CE) significantly due to senior bonds paying down resulting from fast prepayments. Additionally, due to modelling changes, and significant home price appreciation, Fitch's model losses are down from issuance. Further, the M1 bond has paid off and the bonds being assigned ratings are now in the second pay position. (Subordinate to the M2 and related exchangeable)
Structural Performance
Material Paydown But Slowing Prepayments: Due to very fast prepayments throughout the pandemic, GSE-CRT front pay bonds have been paying off allowing subordinate bonds to de-lever. (the M1 bond in this transaction has already paid in full.) The transaction has a lifetime CPR of 39%, 12-month CPR of 18% but a three-month CPR of only 7%.
Credit Enhancement Increase: The fast paydown of first pay bonds has resulted in significant deleveraging and CE build-up for the subordinated bonds. The original CE for these bonds at close was 1.05% and 0.60% for the B1A and B1B, respectively, and is 6.03% and 3.44% as of
Collateral Performance
Delinquency: As of
Home Price Appreciation
Overall, home price value appreciation has slowed and is expected to decline modestly considering the increased interest rate environment. While home prices are likely to continue moderating, the substantial build up in equity since the onset of the pandemic is a positive for the projected losses of the remaining collateral. Fitch currently views the
STACR 2019-HQA3 has an ESG credit relevance score of '4'[+]. Certain drivers of these ratings include exposure to accessibility to affordable housing and exposure to compliance risks including fair lending practices, mis-selling, repossession/foreclosure practices, consumer data protection (data security).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch incorporates a sensitivity analysis to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at the MSA level.
Sensitivity analyses was conducted at the state and national levels to assess the effect of higher MVDs for the subject pool, as well as lower MVDs, illustrated by a gain in home prices.
This defined negative stress sensitivity analysis demonstrates how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0%, in addition to the model projected decline at the base case. This analysis indicates that there is some potential rating migration with higher MVDs compared with the model projection.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
This defined positive rating sensitivity analysis demonstrates how the ratings would react to positive home price growth with no assumed overvaluation. The analysis assumes positive home price growth of 10.0%. Excluding the senior classes already rated 'AAAsf' as well as classes that are constrained due to qualitative rating caps, the analysis indicates there is potential positive rating migration for all of the other rated classes.
This section provides insight into the model-implied sensitivities the transaction faces when one assumption is modified, while holding others equal. The modelling process uses the modification of these variables to reflect asset performance in up and down environments. The results should only be considered as one potential outcome, as the transaction is exposed to multiple dynamic risk factors. It should not be used as an indicator of possible future performance. For enhanced disclosure of Fitch's stresses and sensitivities, please refer to
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
Form 15-E was provided at issuance, and due diligence was also performed at the time of issuance in accordance with
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 was not prepared for this transaction. Offering Documents for this market sector typically do not include RW&Es that are available to investors and that relate to the asset pool underlying the trust. Therefore, Fitch credit reports for this market sector will not typically include descriptions of RW&Es. For further information, please see Fitch's Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.
ESG Considerations
STACR 2019-HQA3 has an ESG Relevance Score of '4' [+] for Customer Welfare - Fair Messaging, Privacy & Data Security due to STACR being a GSE program that addresses access and affordability while driving strong performance, which has a positive impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
STACR 2019-HQA3 has an ESG Relevance Score of '4' [+] for Human Rights, Community Relations, Access & Affordability due to STACR being a GSE program that addresses access and affordability while driving strong performance, which has a positive impact on the credit profile, and is relevant to the ratings in conjunction with other factors.
Certain drivers of these ratings include exposure to accessibility to affordable housing and exposure to compliance risks including fair lending practices, mis-selling, repossession/foreclosure practices, consumer data protection (data security).
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
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