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Rating Action:

Moody's affirms six CMBS REMIC classes of FREMF 2014-K36 Mortgage Trust and affirms the ratings of three SPC classes of Freddie Mac SPCs, Series K-036

07 Dec 2018

Approximately $1.08 billion of structured securities affected

New York, December 07, 2018 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on six classes of CMBS securities (the "REMIC Classes"), issued by FREMF 2014-K36 Mortgage Trust, Multifamily Mortgage Pass-Through Certificates, Series 2014-K36 (the "REMIC Trust") and affirmed the ratings on three classes of related Structured Pass-Through Certificates ("the SPC Classes") issued by Freddie Mac Structured Pass-Through Certificates (SPCs), Series K-036 (the "SPC Trust") as follows:

Issuer: FREMF 2014-K36 Mortgage Trust

Cl. A-1, Affirmed Aaa (sf); previously on Dec 13, 2017 Affirmed Aaa (sf)

Cl. A-2, Affirmed Aaa (sf); previously on Dec 13, 2017 Affirmed Aaa (sf)

Cl. B, Affirmed A1 (sf); previously on Dec 13, 2017 Affirmed A1 (sf)

Cl. C, Affirmed A3 (sf); previously on Dec 13, 2017 Affirmed A3 (sf)

Cl. X1*, Affirmed Aaa (sf); previously on Dec 13, 2017 Affirmed Aaa (sf)

Cl. X2-A*, Affirmed Aaa (sf); previously on Dec 13, 2017 Affirmed Aaa (sf)

Issuer: Freddie Mac Structured Pass-Through Certificates (SPCs), Series K-036

Cl. A-1, Affirmed Guaranteed Rating Aaa (sf); Underlying Rating Affirmed Aaa (sf); previously on Dec 13, 2017 Assigned Guaranteed Rating Aaa (sf); previously on Dec 13, 2017 Underlying Rating Affirmed Aaa (sf)

Cl. A-2, Affirmed Guaranteed Rating Aaa (sf); Underlying Rating Affirmed Aaa (sf); previously on Dec 13, 2017 Assigned Guaranteed Rating Aaa (sf); previously on Dec 13, 2017 Underlying Rating Affirmed Aaa (sf)

Cl. X1*, Affirmed Guaranteed Rating Aaa (sf); Underlying Rating Affirmed Aaa (sf); previously on Dec 13, 2017 Assigned Guaranteed Rating Aaa (sf); previously on Dec 13, 2017 Underlying Rating Affirmed Aaa (sf)

*Reflects interest-only classes

RATINGS RATIONALE

The six REMIC Classes are collateralized by a pool of 74 fixed rate loans. Of these six classes, three REMIC Classes (Classes B, C, and X2-A) were offered to investors, while the remaining three classes (Classes A-1, A-2 and X1, or the "Underlying Guaranteed Classes") were acquired and guaranteed by Federal Home Loan Mortgage Corp. (Freddie Mac) and subsequently deposited into the SPC Trust to back the SPCs that were offered to investors. As a result, any guarantee payments made by Freddie Mac on the Underlying Guaranteed Classes will be passed through to the holders of the corresponding SPC Classes. Freddie Mac also guarantees the SPC Classes themselves. Moody's rates Freddie Mac's senior unsecured debt Aaa.

The SPC Classes issued by the SPC Trust are associated with the REMIC Classes issued by the REMIC Trust. Each of the SPC Classes represents a pass-through interest in an associated REMIC Class issued by the REMIC Trust. Class A-1 SPC represents a pass-through interest in REMIC Class A-1; Class A-2 SPC represents a pass-through interest in REMIC Class A-2; and Class X1 SPC represents a pass-through interest in REMIC Class X1. The two trusts are interrelated given that the aggregate certificate amount of $1,169,461,492 as of the November 2018 remittance statement, comprised of $974,991,113 in offered SPCs and $194,470,379 in offered REMIC Classes, equals the underlying mortgage loan pool balance of $1,169,461,492.

The principal and interest (P&I) REMIC Classes Cl. A-1, Cl. A-2, Cl. B, and Cl. C were affirmed because the transaction's key metrics, including Moody's loan-to-value (LTV) ratio, Moody's stressed debt service coverage ratio (DSCR) and the transaction's Herfindahl Index (Herf), are within acceptable ranges.

The interest-only (IO) REMIC Classes Cl. X1 and Cl. X2-A were affirmed based on the credit quality of their referenced classes.

Under the transaction documents, Freddie Mac guarantees payments on the Underlying Guaranteed Classes and the SPC Classes, including (a) timely payment of interest, (b) payment of related principal on the distribution date following the maturity date of each balloon mortgage loan to the extent such principal would have been distributed to Classes A-1 and A-2, (c) realized losses and other fees/expenses allocated to Classes A-1 and A-2, and (d) ultimate payment of principal by the final distribution date for Classes A-1 and A-2.

Moody's believes that the Freddie Mac guarantees that enhance SPC Classes A-1 and A-2 support complete credit substitution given the strong incentives for Freddie Mac to fulfill its guarantee obligations under this transaction. The failure to fulfill its guarantee obligations under this transaction would have negative credit implications for Freddie Mac. As a result, the Guaranteed Ratings on the SPC Classes A-1 and A-2 are the higher of the support provider's financial strength rating (Aaa, senior unsecured) and the Underlying Rating of the SPC Classes absent Freddie Mac's guarantees.

Moody's notes that the Freddie Mac guarantees on the interest-only SPC Class X1 do not provide additional enhancement. Freddie Mac's guarantee does not cover any loss of yield on this interest-only class following a reduction of notional amount due to a reduction of the principal balance of the REMIC Underlying Guaranteed Classes. Therefore, SPC Class X1's Guaranteed Rating and Underlying Rating reflect only the class's underlying credit risk without credit for the guarantees.

Given the repack nature of the structure, SPC note holders are exposed to the credit risk of the underlying SPC assets, namely, the rated REMIC Underlying Guaranteed Classes. The SPC Trust contains separate pass-through pools, designated as Pass-Through Pool A-1, A-2 and X1, and each holds a corresponding rated REMIC Underlying Guaranteed Class, including REMIC Classes A-1, A-2 and X1, respectively. All cash flow received by each of the Underlying Guaranteed Classes is applied to make pass-through payments to the corresponding SPC Class. Repayment of the rated SPC Classes depends primarily on the performance of the rated REMIC Underlying Guaranteed Certificates, as well as any payments made by Freddie Mac pursuant to its guarantees.

In the affirmation of the Guaranteed Ratings on the three SPC Classes, Moody's considered the repack nature of the structure, the credit quality of the underlying collateral, and, other than with respect to the Underlying Ratings, the guarantees that Freddie Mac provides for the benefit of the SPCs.

The Underlying Ratings on the SPC Classes were affirmed based on the underlying credit risk of the related REMIC Underlying Guaranteed Classes without credit for the guarantee provided by Freddie Mac.

Moody's rating action reflects a base expected loss of 1.1% of the current pooled balance, the same as at Moody's last review. Moody's base expected loss plus realized losses is now 1.0% of the original pooled balance, compared to 1.1% at the last review. Moody's provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:

The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range can indicate that the collateral's credit quality is stronger or weaker than Moody's had previously expected.

Factors that could lead to an upgrade of the ratings include a significant amount of loan paydowns or amortization, an increase in the pool's share of defeasance or an improvement in pool performance.

Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool, loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or interest shortfalls.

With respect to certain SPC Classes, key to our assumption in reaching the certificates' Guaranteed Ratings are the Freddie Mac guarantees. With the exception of the interest-only SPC Class X1, the Guaranteed Ratings of the SPC Classes may be sensitive to any change in Freddie Mac's rating, since our Guaranteed Ratings on the SPC Classes are the higher of Freddie Mac's financial strength rating as the guarantee provider and the SPC Classes' Underlying Rating.

METHODOLOGY UNDERLYING THE RATING ACTION

The principal methodology used in rating all classes of FREMF 2014-K36 Mortgage Trust except interest-only classes was "Approach to Rating US and Canadian Conduit/ Fusion CMBS" published in July 2017. The methodologies used in rating all guaranteed classes of Freddie Mac Structured Pass-Through Certificates (SPCs), Series K-036 except guaranteed interest-only classes were "Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts" published in May 2017, and "Moody's Approach to Rating Repackaged Securities" published in June 2015. The principal methodology used in rating all underlying Freddie Mac Structured Pass-Through Certificates (SPCs), Series K-036 except underlying interest-only classes was "Moody's Approach to Rating Repackaged Securities" published in June 2015. The methodologies used in rating interest-only classes of FREMF 2014-K36 Mortgage Trust were "Approach to Rating US and Canadian Conduit/ Fusion CMBS" published in July 2017 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in June 2017. The methodologies used in rating guaranteed interest-only classes of Freddie Mac Structured Pass-Through Certificates (SPCs), Series K-036 were "Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts" published in May 2017, "Moody's Approach to Rating Repackaged Securities" published in June 2015, and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in June 2017. The methodologies used in rating underlying interest-only classes of Freddie Mac Structured Pass-Through Certificates (SPCs), Series K-036 were "Moody's Approach to Rating Repackaged Securities" published in June 2015, and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in June 2017. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

The Credit Ratings for the REMIC Trust, Cl. X1 and Cl. X2-A and the SPC Trust, Cl. X1 were assigned in accordance with Moody's existing Methodology entitled "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" dated June 2017. Please note that on November 14, 2018, Moody's released a Request for Comment, in which it has requested market feedback on potential revisions to its Methodology for rating structured finance interest-only (IO) securities. If the revised Methodology is implemented as proposed, the Credit Ratings on the REMIC Trust, Cl. X1 and Cl. X2-A and the SPC Trust, Cl. X1 are unlikely to be affected. Please refer to Moody's Request for Comment, titled "Proposed Update to Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities," for further details regarding the implications of the proposed Methodology revisions on certain Credit Ratings.

The Credit Ratings for the SPC Trust, Cl. A-1, Cl. A-2, and Cl. X1 were assigned in accordance with Moody's existing Methodology entitled "Moody's Approach to Rating Repackaged Securities" dated June 2015. Please note that on November 14, 2018, Moody's released a Request for Comment, in which it has requested market feedback on potential revisions to its Methodology for rating repackaged securities. If the revised Methodology is implemented as proposed, the Credit Rating on the SPC Trust, Cl. A-1, Cl. A-2, and Cl. X1 are unlikely to be affected. Please refer to Moody's Request for Comment, titled " Proposed Update to Moody's Approach to Rating Repackaged Securities," for further details regarding the implications of the proposed Methodology revisions on certain Credit Ratings.

DEAL PERFORMANCE

As of the November 25, 2018 distribution date, the transaction's aggregate certificate balance has decreased by 7% to $1.17 billion from $1.25 billion at securitization. The certificates are collateralized by 74 mortgage loans ranging in size from less than 1% to 7% of the pool, with the top ten loans (excluding defeasance) constituting 36% of the pool. Five loans, constituting 4% of the pool, are secured by co-op loans and have investment-grade structured credit assessments of aaa (sca.pd). Six loans, constituting 7% of the pool, have defeased and are secured by US government securities.

Moody's uses a variation of Herf to measure the diversity of loan sizes, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including the risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 38, the same as at Moody's last review.

Ten loans, constituting 7% of the pool, are on the master servicer's watchlist. The watchlist includes loans that meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of Moody's ongoing monitoring of a transaction, the agency reviews the watchlist to assess which loans have material issues that could affect performance.

No loans have been liquidated from the pool. No loans are currently in special servicing.

Moody's received full or partial year 2017 operating results for 97% of the pool, and partial year 2018 operating results for 90% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 93%, compared to 94% at Moody's last review. Moody's conduit component excludes loans with structured credit assessments, defeased and CTL loans, and specially serviced and troubled loans. Moody's net cash flow (NCF) reflects a weighted average haircut of 15% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 8.9%.

Moody's actual and stressed conduit DSCRs are 1.57X and 1.13X, respectively, compared to 1.57X and 1.11X at the last review. Moody's actual DSCR is based on Moody's NCF and the loan's actual debt service. Moody's stressed DSCR is based on Moody's NCF and a 8.75% stress rate the agency applied to the loan balance.

The top three conduit loans represent 16.2% of the pool balance. The largest loan is the Milano At Crescent Village Loan ($82.8 million -- 7.1% of the pool), which is secured by a 357-unit mid-rise luxury apartment complex located in San Jose, California. The property was built in 2013 and is part of a 1,750-unit multifamily community along with four other multifamily properties. As of June 2018, the property was 98% leased, compared to 97% leased as of December 2017. Moody's LTV and stressed DSCR are 97% and 0.91X, respectively, compared to 100% and 0.89X at the last review.

The second largest loan is the Paddock At Hayden Run Loan ($54.3 million -- 4.6% of the pool), which is secured by a 552-unit townhome and garden-style apartment complex located in Dublin, Ohio. As of June 2018, the property was 97% leased, compared to 96% leased as of December 2017. Moody's LTV and stressed DSCR are 123% and 0.82X, respectively, compared to 125% and 0.8X at the last review.

The third largest loan is the Bella Vida At Coyote Ridge Loan ($52.3 million -- 4.5% of the pool), which is secured by a 528-unit garden-style apartment and townhome complex located in Carrollton, Texas. The property is improved with 51 two- and three-story apartment buildings built in two phases in 1998 and 2001. As of September 2017, the property was 98% leased, compared to 97% leased as of December 2016 and 92% leased at securitization. Moody's LTV and stressed DSCR are 107% and 0.91X, respectively, compared to 109% and 0.89X at the last review.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

The analysis for REMIC Trust includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

In rating SPC Trust Moody's did not use any models, or loss or cash flow analysis, in its analysis.

Moody's did not use any stress scenario simulations in its analysis.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Kevin Li
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Matthew Halpern
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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