STACR Securitized Participation Interests (STACR SPI) are a form of credit risk transfer that allows for issuance of Gold PCs using existing PC processes and systems, while transferring credit risk via a cash securitization. Mortgage loans funded by Freddie Mac’s cash window are deposited into a Participation Interest (PI) Trust, in exchange for a PC Participation Interest (96%) and Credit Participation Interest (4%) for each mortgage loan. The PC Participation Interests are used to issue Gold PCs and the Credit Participation Interests are deposited into the SPI Trust, which then issues non-guaranteed SPI certificates to credit investors.
Consistent with traditional Gold PCs, Freddie Mac will repurchase PC Participation Interests from their respective PC trusts, as permitted by the PC Master Trust Agreement (generally when the related mortgage loan becomes 120 days delinquent). Repurchased PC Participation Interests will be deposited into the related STACR SPI trust, which will then hold a 100% beneficial interest in the related mortgage loan. Any losses on related mortgage loans will be applied upon final disposition of said losses.
Principal and interest payments on the underlying mortgage loans, whether received from borrowers or advanced by Freddie Mac as Master Servicer, provide the funds for payment of certain expenses of the STACR SPI trust and for distributions of principal and interest to investors. Payments of principal and interest are made monthly sequentially within the SPI Trust and losses are allocated in reverse sequential order.