FEDERAL HOME LOAN MORTGAGE CORPORATION
Fitch Ratings has upgraded 15 and affirmed 103 classes from 11 Fitch-rated 2016 vintage
The upgrades include classes B and C across eight
Classes B and C in FREMF 2016-K722 and FREMF 2016-K723 were assigned Stable Outlooks following their upgrades to 'AAAsf'. Eleven classes from six transactions were assigned Positive Outlooks following upgrades, and the Outlooks for five classes from three transactions were revised to Positive from Stable after being affirmed.
In addition, Fitch has upgraded the unenhanced ratings on 16 classes (A-M and XAM) across four FREMF and four
The unenhanced ratings of classes A-M and XAM in FREMF 2016-K56 and
RATING ACTIONS
Entity / Debt
Rating
Prior
Freddie Mac Structured Pass-Through Certificates 2016-K057
A-1 3137BRQH1
LT
AAAsf
Affirmed
AAAsf
A-1 3137BRQH1
ULT
AAAsf
Affirmed
AAAsf
A-2 3137BRQJ7
LT
AAAsf
Affirmed
AAAsf
A-2 3137BRQJ7
ULT
AAAsf
Affirmed
AAAsf
A-M 3137BRQK4
LT
AAAsf
Affirmed
AAAsf
A-M 3137BRQK4
ULT
AAsf
Upgrade
A+sf
X1 3137BRQL2
LT
AAAsf
Affirmed
AAAsf
X1 3137BRQL2
ULT
AAAsf
Affirmed
AAAsf
XAM 3137BRQN8
LT
AAAsf
Affirmed
AAAsf
Page
of 23
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 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 0.10% to 3.8% of the current pool balance, with the largest losses in FREMF 2016-K58 (3.8%), FREMF 2016-K60 (3.40%), and FREMF 2016-K59 (3.10%). There are 44 loans on the servicer's watch lists (5.5% of the 2016 vintage), and no specially serviced loans. Fitch has identified 43 loans as Fitch Loans of Concern (FLOCs) due to declining occupancy and cash flow, low debt service coverage ratio (DSCR) and/or sponsor issues. The average FLOC concentration was 6.2% (ranging from 0% to 13%), with the highest concentrations in FREMF 2016-K59 (13.0%), FREMF 2016-K60 (10.7%), and FREMF 2016-K58 (10.2%).
Increased Credit Enhancement (CE); Increased Defeasance: The upgrades and Positive Outlook revisions are based on the increased CE and significant additional defeasance within these transactions since Fitch's last rating action. As of the
Additional Loss Considerations: To test the viability of the upgrades and Positive Rating Outlook revisions, 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 & Student Housing Exposure: Twenty loans (1.9% of the 2016 vintage) are secured by senior housing properties. Thirty loans (4.4%) 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 Outlook revisions.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Downgrades on 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
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