STACR SPI transfers credit risk via a cash securitization. Mortgages funded by Freddie Mac’s cash window are deposited into a participation interest (PI) trust, in exchange for a participation interest (96%) and credit participation interest (4%) for each loan. The credit participation interests are deposited into the STACR SPI trust, which then issues non-guaranteed SPI certificates to investors.
Freddie Mac repurchases PIs from their respective trusts as permitted by a master trust agreement, generally when the related mortgage becomes 120 days delinquent. Repurchased PIs are deposited into the related SPI trust, which will then hold a 100% beneficial interest in the related mortgage. Any losses will be applied upon final disposition.
Interest and principal payments on underlying mortgages, whether received from borrowers or advanced by Freddie Mac, provide the funds for payment of certain expenses of SPI trust and for monthly distributions of interest and principal to investors. Payments are made sequentially within the SPI trust and losses are allocated in reverse sequential order.