KBRA Assigns BB+ Issuer Rating to Freedom Mortgage Corporation

NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) assigns an issuer rating of BB+ to Freedom Mortgage Corporation (“Freedom” or “the company”), based in Mount Laurel Township, NJ. The Outlook for the rating is Stable.

Freedom’s issuer rating is supported by the company’s solid, multiyear operating performance history that benefits from a diversified origination business which incorporates a flexible operating expense base, as well as an efficient servicing platform that has developed as the company’s portfolio has grown. Freedom also reflects a substantial equity base that has grown consistently through unwavering retention of earnings. Additionally, the company maintains reasonable balance sheet leverage, notwithstanding its increased corporate debt in recent years utilized principally to fund MSR investment. During 1H19, Freedom ranked 7^th among leading U.S. residential mortgage originators, with $25 billion of production (including co-issue loans), and reflected the 11^th largest primary servicing portfolio ($212 billion of UPB) at quarter-end.

The rating also considers the highly competitive and cyclical residential mortgage industry, as well as Freedom’s predominately short-to-intermediate term, market-funded business model; though, with respect to the latter, one which is similar to most leading non-bank peers. KBRA considers Freedom’s somewhat higher-than-peer risk tolerance to manifest itself principally in the strategic decision not to hedge its substantial MSR investment with financial instruments; likely stemming in no small part from the company’s private ownership (by one individual). While substantial origination call center productivity during periods of elevated refinance activity offers a strategic hedge to the MSR, albeit with short-term “timing differences”, competitive industry dynamics could alter the results of this operating thesis. Accordingly, should unfavorable competitive operating trends with respect to originations, and / or the cost of purchasing or creating MSRs emerge, Freedom’s large MSR investment could, at some point, be at risk of meaningful value degradation without financial offset.

The company’s enhanced executive management structure, highlighted by addition of key operating, audit, risk, compliance, and other committees is viewed favorably, and considered that much more necessary given Freedom’s unitary ownership and board of director membership.

A rating report will be forthcoming.

The ratings are based on KBRA’s Global Finance Company Rating Methodology published on November 28, 2017.

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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

Contacts

Analytical Contacts:

Ian Jaffe, Managing Director

(646) 731-3302

ijaffe@kbra.com

Shannon Servaes, CFA, CPA, Senior Director

(301) 969-3247

sservaes@kbra.com