About 50 broadly diversified investors are participating in a $500 million offering by Freddie Mac of Structured Agency Credit Risk (STACR^SM) Debt Notes. STACR debt, the first in a series of such offerings, is also the first attempt by the company to reduce its exposure (and thus taxpayers' exposure) for some single-family mortgage risk. The notes are not guaranteed by Freddie Mac.

The STACR debt notes, i.e. bonds, are different from other Freddie Mac securities and debt issues. The amount of periodic principal and ultimate principle paid by Freddie Mac is determined by the performance of a very large and diversified reference pool of more than 96,000 loans representing $22.5 billion in residential mortgages. The pool is a subset of 30-year fixed-rate single-family mortgages acquired by Freddie Mac in the third quarter of 2012.

"This debt issuance is an important step forward in reducing our exposure to residential credit risk by transferring a portion of it to private sector investors," said Freddie Mac CEO Donald H. Layton. "Our intent is to create a product that will be well-received by investors and can become repeatable and scalable over time."

The large and highly-diversified pool behind the debt notes may provide more stable and predictable performance, the company said, and in addition to the size of the pool - most industry securities that transfer credit-risk are based on pools that are usually smaller than 1,000 loans - the STACR notes don't impact the To Be Announced (TBA) market. They also limit investor uncertainty by utilizing a pre-defined calculated severity feature.

Response to the offering caused its size to be raised to $500 million from the $400 million originally planed. Investors participating in the offering include mutual funds, hedge funds, REITS, pension funds, banks, insurance companies, and credit unions.

Freddie Mac holds the senior and first loss risk in the pool and retains control of servicing and loss mitigation practices, but by placing the STACR debt with investors the company reduces its exposure to unexpected losses. Credit Suisse and Barclays Capital were co-lead managers in bringing the issue, designated STACR Debt Notes, Series 2013-DN1, to market.

Pricing for the M-1 tranche was one-month LIBOR plus a spread of 340 basis points. Pricing for the M-2 tranche was one month LIBOR plus a spread of 715 basis points. The notes were priced Tuesday and are scheduled to settle on July 26.

Edward J. DeMarco, Acting Director of the Federal Housing Finance Agency (FHFA) said his agency was pleased with Freddie Mac's near completion of its first risk sharing transaction and called it a key step in the process of attracting private capital back into the housing finance market. "One of the goals of our Scorecard and Strategic Plan for Enterprise Conservatorships is to gradually contract Fannie Mae and Freddie Mac's dominant presence in the marketplace. This transaction is a step towards that goal.

"It was designed to gain insight as to how the private sector prices mortgage credit risk and to reduce taxpayers' exposure to that risk. We expect to learn from this transaction, refine the approach and maintain steady progress with future transactions to restore private sector participation in housing finance."