FEDERAL HOME LOAN MORTGAGE CORPORATION Fitch Ratings has upgraded five and affirmed 136 classes of Fitch-rated 2018 Vintage Freddie Mac transactions.
The upgrades include the unenhanced ratings on classes A-M and XAM, and class B from FREMF 2018-K731, as well as the unenhanced ratings on classes A-M and XAM from Freddie Mac Structured Pass Through Certificates 2018-K731. These classes were assigned a Positive Outlook following their upgrade.
The affirmations include 82 classes from 11 FREMF multifamily mortgage pass-through certificates and 54 classes from 11
Of the affirmed classes, the Rating Outlooks on 10 classes of FREMF mortgage pass-through certificates were revised to Positive from Stable. Fitch has also revised the Rating Outlook to Positive from Stable on the unenhanced ratings on eight classes of the FREMF multifamily pass-through certificates and eight classes of the
RATING ACTIONS
Entity / Debt
Rating
Prior
Freddie Mac Structured Pass Through Certificates 2018-K081
A-1 3137FJEG0
LT
AAAsf
Affirmed
AAAsf
A-1 3137FJEG0
ULT
AAAsf
Affirmed
AAAsf
A-2 3137FJEH8
LT
AAAsf
Affirmed
AAAsf
A-2 3137FJEH8
ULT
AAAsf
Affirmed
AAAsf
A-M 3137FJEJ4
LT
AAAsf
Affirmed
AAAsf
A-M 3137FJEJ4
ULT
A+sf
Affirmed
A+sf
X1 3137FJEK1
LT
AAAsf
Affirmed
AAAsf
X1 3137FJEK1
ULT
AAAsf
Affirmed
AAAsf
XAM 3137FJEM7
LT
AAAsf
Affirmed
AAAsf
Page
of 27
VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
Freddie Mac Guarantee, Credit Linked Notes: The multifamily mortgage pass-through certificates are guaranteed by
The affirmations of the long-term ratings are based on the generally stable to improving pool performance and loss expectations, and are supported by the guarantee. Although the interest-only classes are guaranteed, the long-term ratings are based on the pass-through to the referenced certificates. Although
Stable to Improved Loss Expectations: Fitch's unenhanced ratings are based on an analysis of the underlying collateral pools and do not give any credit to the
Pool-level losses ranged from 2.0% to 7.0% of the current pool balance, with the highest in FREMF 2018-K78 (7.0%), FREMF 2018-K75 (6.2%) and FREMF 2018-K74 (6.0%). There are 43 loans on the servicer's watch lists (6.4% of the 2018 vintage), and one specially serviced loan (0.4% of pool balance of FREMF 2018-K74). Fitch has identified 60 loans as Fitch Loans of Concern (FLOCs) due to declining occupancy and cash flow, low DSCR and/or sponsor issues. The average FLOC concentration was 10.8% (ranging from 0.5% to 23.5%), with the highest concentrations in FREMF 2018-K78 (23.5%), FREMF 2018-K74 (21.2%) and FREMF 2018-K81 (19.2%).
Increased Credit Enhancement (CE); Increased Defeasance: The upgrades and Positive Outlooks are based on the increased credit enhancement and defeasance since Fitch's last rating action. As of the
FREMF 2018-K72: paydown of 2.2% since issuance (up from 1.5% at the last rating action); defeasance of 13.5% of current pool (up from 3.7% at the last rating action);
FREMF 2018-K73: paydown, 1.1% (0.7%); defeasance, 9.7% (0.0%);
FREMF 2018-K74: paydown, 4.5% (0.7%); defeasance, 11.3% (3.3%);
FREMF 2018-K75: paydown, 1.2% (0.7%); defeasance, 12.7% (0.4%);
FREMF 2018-K76: paydown, 0.8% (0.6%); defeasance, 17.7% (8.4%);
FREMF 2018-K77: paydown, 1.0% (0.7%); defeasance, 6.3% (1.9%);
FREMF 2018-K78: paydown, 1.0% (0.6%); defeasance, 5.5% (1.0%);
FREMF 2018-K81: paydown, 1.6% (1.2%); defeasance, 22.8% (8.6%);
FREMF 2018-K82: paydown, 0.6% (0.3%); defeasance, 14.5% (0.7%);
FREMF 2018-K83: paydown, 0.4% (0.2%); defeasance, 13.6% (1.2%);
FREMF 2018-K731: paydown, 9.8% (5.6%); defeasance, 38.0% (12.2%).
Additional Loss Considerations: To test the viability of the Positive Rating Outlooks, Fitch applied a stress scenario that assumed a higher cap rate and stress to the servicer-reported NOI, and considered paydown from the defeased loans.
Senior and Student Housing Exposure: Twenty loans (3.1% of the 2018 vintage) are secured by senior housing properties. Forty-four loans (8.4%) are secured by a student housing property or multifamily property with a high student concentration. Fitch's base case analysis applied higher cap rates to these multifamily sub-classifications as they are considered more volatile and/or may require more operational experience than traditional multifamily assets. These additional stresses supported the current ratings and Outlooks.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Downgrades of the unenhanced ratings could occur with an increase in pool level expected losses from underperforming or specially serviced loans. While not expected, downgrades to classes B and C could occur if loss expectations for the pool increase significantly, performance of the FLOCs or properties vulnerable to the coronavirus do not stabilize to pre-pandemic levels and/or loans face difficulty refinancing at maturity.
The unenhanced ratings represent a detachment from the guarantee provided by
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Upgrades of classes B and C could occur if there is continued stable to improved asset performance coupled with additional paydown and/or defeasance. However, adverse selection, increased concentrations or the underperformance of particular loans could cause this trend to reverse.
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 ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The multifamily mortgage pass-through certificates are guaranteed by
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) 2023 Electronic News Publishing, source
