Fitch Affirms FREMF 2012-K705 and Freddie Mac Pass-Through Certificates, Series K-705

NEW YORK--()--Fitch Ratings has affirmed all five classes of FREMF 2012-K705 multifamily mortgage pass-through certificates and three classes of Freddie Mac structured pass-through certificates, series K-705. A detailed list of rating actions follows at the end of this release.

The affirmations of the Freddie Mac K-705 certificates are the result of the pass-through nature of the certificates, as they are dependent on the underlying ratings of corresponding classes for FREMF 2012-K705.

KEY RATING DRIVERS

The affirmations reflect the stable performance of the pool since issuance, in which the properties securing the non-defeased loans have experienced net operating income (NOI) growth of 24.8%.

As of the November 2016 distribution date, the pool's aggregate principal balance has been reduced by 4.8% to $1.16 billion from $1.22 billion at issuance. Per servicer reporting, 23 loans are fully defeased (30.5% of the current balance). There are four loans (6.6%) on the Servicer's Watchlist, three of which are on it for minor deferred maintenance items and one (0.47%) for a drop in performance. There are no specially serviced loans and all loans were current as of the November 2016 distribution date.

Loan of Concern: Fitch has designated the Crosswinds at Rolling Road (4.8%) as a Fitch Loan of Concern. The loan is secured by an 803-unit townhome style apartment complex located in Baltimore, MD. Performance at the property has declined after a fire at the property in the early part of 2015 caused 31 units to be brought offline. The borrower continues to struggle to retain existing and attract new tenants. As of September 2016, the property was 82% occupied which is down from 94% as of year-end (YE) 2014. Per servicer reporting, the NOI debt service coverage ratio (DSCR) dropped to 2.04x as of YE 2015 from 2.19x YE 2014. Fitch will continue to monitor the loan for further performance deterioration.

High Percentage of Interest-Only Loans: Currently, 68% of the pool's balance is composed of partial interest-only loans and 10% are full term interest-only loans.

Geographic Concentration: The pool contains a high percentage of loans (21.9% of the current balance) secured by assets in Maryland.

Property-Type Concentration: The pool is 100% backed by loans on multifamily properties. Additionally, there are six loans (9.6%) secured by properties with a large student housing component.

RATING SENSITIVITIES

The Rating Outlooks on classes A-1, A-2, C, and X-1 remain Stable. The Rating Outlook for class B has been revised to Positive to reflect the potential for an upgrade to that class should performance of the pool remain strong and the non-defeased loans continue to experience NOI growth. Fitch does not foresee positive or negative ratings migration for any other classes until a material economic or asset level event changes the transaction's overall pool-level metrics.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

No third-party due diligence was provided or reviewed in relation to this rating action.

Fitch has affirmed the following ratings:

FREMF 202-K705 Multifamily Mortgage Pass-Through Certificates

--$34.4 million class A-1 at 'AAAsf'; Outlook Stable;

--$936.3 million class A-2 at 'AAAsf'; Outlook Stable;

--$68.8 million class B at 'Asf'; Outlook revised to Positive from Stable;

--$30.6 million class C at 'BBB+sf'; Outlook Stable.

--$970.7 million* class X-1 at 'AAAsf'; Outlook Stable.

Fitch does not rate the class D, X-2, or X-3 certificates.

Freddie Mac Structured Pass-Through Certificates, Series K-705

--$34.4 million class A-1 at 'AAAsf'; Outlook Stable;

--$936.3 million class A-2 at 'AAAsf'; Outlook Stable;

--$970.7 million* class X-1 at 'AAAsf'; Outlook Stable.

Fitch does not rate the X-3 certificates.

*Notional amount and interest-only.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
https://www.fitchratings.com/site/re/886006

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)
https://www.fitchratings.com/site/re/882401

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/site/re/883130

North America and Asia-Pacific Multiborrower CMBS Surveillance Criteria (pub. 01 Dec 2016)
https://www.fitchratings.com/site/re/891159

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015686

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015686

Endorsement Policy
https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst:
Zachary Johnson, +1-646-582-4815
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson:
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Zachary Johnson, +1-646-582-4815
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Committee Chairperson:
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com