These securizations are the logical progression of the TEL program that Freddie Mac launched in 2014.

A variation on the 4% Low-Income Housing Tax Credit execution, the basic program works like this: a Freddie Mac Targeted Affordable Housing seller or servicer, typically a lender, makes a direct loan to a government entity such as a city, county or state housing authority in exchange for a tax-exempt note.

Freddie Mac then purchases the tax-exempt loan from the seller. The city, county or state housing authority that issued the note then lends the loan proceeds to a borrower to finance a multifamily housing community that has affordable rents.

Today, the vast majority of TELs provide financing for 4% LIHTCs, Leopold says.

After the program's launch, Freddie began incrementally expanding it.

First it added a forward TEL commitment product. Then the GSE began providing its own bridge loan to TEL financing. Then it offered a floating-to-fixed rate TEL, a product that offers a variable interest rate of up to two years after which the borrower can flip to the fixed rate.

And then Freddie began offering fixed-rate loans, executing at 10 years and then 18 years. It stopped there until it felt more confident about the market, Leopold said — the investors' market, that is. “Eventually we became comfortable that there were investors interested in these long-term securities,” Leopold said.

M-Series Securitizations

To be clear, Freddie Mac has been securitizing tax exempt loans on the M shelf for more than a decade as part of its tax-exempt bond securitization, or TEBs, program.

However, the TEBS structure is a proprietary execution offered to sponsors to transfer their privately placed tax-exempt multifamily housing revenue bonds to Freddie Mac in exchange for Freddie Mac class A M-certificates that are sold to investors and subordinate class-B M-certificates that are retained by the sponsor.

The TEL securitizations will be entirely new as Freddie Mac will be using its own collateral, Leopold says.

Leopold declines to speculate on the investors that would be interested in the TEL M-certificates. Certainly given that the collateral is municipal-financed, muni investors would be a good guess as well as the usual suspects for multifamily-backed collateral such as CMBS investors. Another appeal to investors: it is possible the interest the securities will throw off will be tax-deductible for some investors as the securities are structured to pass through the tax-exempt interest.

What Leopold will say is that the TEL securitizations will offer unique securities to investors. “There is not an exact corollary on the market today.”