-

KBRA Releases Research - Freddie Mac K-Series: First-Quarter 2023 Defeasance and Supplemental Debt Plummet After Record High in 2022

NEW YORK--(BUSINESS WIRE)--KBRA releases a new report on defeasance and supplemental debt, which climbed to an all-time high in 2022 for Freddie Mac K-Series deals. The numbers were very compelling, with defeasance rising 39% to $16.4 billion and supplemental debt up 73.4% to $2.1 billion on a year-over-year basis. This was despite a downward trend for both defeasance and supplemental debt throughout 2022 and continuing into Q1 2023. First-quarter 2023 recorded the largest decline on a quarter-over-quarter basis over this period for both defeasance (-58.5%) and supplemental debt (-35.4%).

Despite the decline in activity in 2H 2022, defeasance may have benefited from lower Treasury prices due to the rise in the 10-year note, as the cost to replace property cash flows with defeasance Treasury securities became cheaper. Supplemental debt activity may have also been influenced by borrowers who opted not to take out higher coupon first mortgages, keeping them intact while receiving additional proceeds through second mortgages.

In addition, as was observed with defeasance and supplemental debt trends, it was also in Q3 2022 when both price growth and multifamily transaction volume turned negative, which continued through Q1 2023. In light of the slowdown, borrowers may have been unable to obtain the price that they wanted due to wide bid and ask prices and turned more cautious, not wanting to re-leverage their existing equity through supplemental debt.

In the short term, until confidence returns to the property markets, elusive price levels will undermine multifamily investments, which in turn will influence defeasance and supplemental debt levels. However, once prices exhibit more transparency—albeit most likely at lower growth levels than previously experienced over the last decade—defeasance and supplemental debt should rise again given the sector’s track record and mortgage rate increases that have forced many out of the housing market and into apartment living.

Click here to view the report.

Related Publications

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

Contacts

Larry Kay, Senior Director, CMBS Ratings Surveillance
+1 (646) 731-2452
larry.kay@kbra.com

Aryansh Agrawal, Analyst, CMBS Ratings Surveillance
+1 (646) 731-1381
aryansh.agrawal@kbra.com

Roy Chun, Senior Managing Director, CMBS Ratings Surveillance
+1 (646) 731-2376
roy.chun@kbra.com

Business Development Contact

Dan Stallone, Senior Director
+1 (646) 731-1308
daniel.stallone@kbra.com

KBRA

Details
Headquarters: New York City, New York
CEO: Jim Nadler
Employees: 400+
Organization: PRI

Release Versions

Contacts

Larry Kay, Senior Director, CMBS Ratings Surveillance
+1 (646) 731-2452
larry.kay@kbra.com

Aryansh Agrawal, Analyst, CMBS Ratings Surveillance
+1 (646) 731-1381
aryansh.agrawal@kbra.com

Roy Chun, Senior Managing Director, CMBS Ratings Surveillance
+1 (646) 731-2376
roy.chun@kbra.com

Business Development Contact

Dan Stallone, Senior Director
+1 (646) 731-1308
daniel.stallone@kbra.com

More News From KBRA

KBRA Assigns Preliminary Ratings to GS Mortgage-Backed Securities Trust 2026-HE1 (GSMBS 2026-HE1)

NEW YORK--(BUSINESS WIRE)--KBRA assigns preliminary ratings to 6 classes of mortgage-backed notes from GS Mortgage-Backed Securities Trust 2026-HE1 (GSMBS 2026-HE1), a $301.4 million RMBS transaction sponsored by Goldman Sachs Mortgage Company (Goldman Sachs or GSMC), consisting of first lien (6.6%) and second lien (93.4%) home equity line of credit (HELOC) loans. The underlying pool is seasoned approximately six months and comprises 3,092 loans, with United Wholesale Mortgage, LLC (UWM; 79.5%)...

KBRA Assigns Preliminary Rating to AMCR ABS Trust 2026-A

NEW YORK--(BUSINESS WIRE)--KBRA assigns a preliminary rating to one class of notes issued by AMCR ABS Trust 2026-A (“AMCR 2026-A”), an unsecured consumer loan ABS transaction. AMCR 2026-A has initial hard credit enhancement of 44.2% for the Class A notes. Credit enhancement is comprised of overcollateralization, subordination (except for the Class D notes), a cash reserve account funded at closing, and excess spread. AMCR 2026-A will issue four classes of notes totaling $149.3 million, with KBR...

KBRA Assigns Preliminary Ratings to PMT Loan Trust 2026-CNF3

NEW YORK--(BUSINESS WIRE)--KBRA assigns preliminary ratings to 44 classes of mortgage-backed notes from PMT Loan Trust 2026-CNF3 (PMTLT 2026-CNF3), a prime RMBS transaction sponsored by PennyMac Corp. (PennyMac), an indirect, wholly-owned subsidiary of PennyMac Mortgage Investment Trust (PMT). PMTLT 2026-CNF3 comprises 589 agency-eligible, conforming mortgage loans with an aggregate stated principal balance of approximately $322.7 million as of the March 1, 2026 cut-off date. The underlying col...
Back to Newsroom