Freddie Mac (FRE) launched a $1 billion commercial mortgage bond backed by multifamily loans that is due to be sold in the second week of June.

This marks the first time that a commercial mortgage bond is sold with the backing of a government-sponsored enterprise. It would also be the first large commercial mortgage bond deal sold in nearly a year.

The deal is led by Deutsche Bank Securities Inc. and is expected to settle mid to late June.

It is backed by 62 recently originated multifamily mortgages, and is guaranteed by Freddie Mac.

The K certificates, as these securities are called, are expected to open up a new way for Freddie to raise liquidity and support the troubled multifamily market. Apartment and condominium complexes have been the most troubled in the real-estate sector.

"Freddie Mac is responding to difficult conditions in the multifamily housing financing market by finding innovative ways to link affordable rental housing to the capital markets," said Mike May, Freddie Mac's senior vice president of multifamily business.

By offering multifamily loan securitization through this bond, Freddie is providing "critically needed support to the multifamily housing market during these difficult economic times," May said.

The deal is not eligible for the Federal Reserve's liquidity program called Term Asset-Backed Liquidity Facility which was expanded, recently, to include commercial mortgage bonds. Since the TALF program is intended to support and encourage non-government bond issuance, these securities don't make the cut as they come with a Freddie guarantee, that carries implicit government backing.

Freddie, however, expects to market the deal to investors who are familiar with its debt and mortgage bonds, in addition to the traditional buyer of commercial mortgage bonds.

The mortgage finance company says it hasn't set a price on the deal yet, but is looking at a range of reference points including risk premiums on its current debt issuance, its residential mortgage securities and the current trading levels of commercial mortgage bonds backed by multifamily collateral.

Freddie will sell six classes publicly, and each of them carry a triple-A rating from Fitch Ratings and DBRS. Freddie said it took the unusual step of rating its bonds to boost investor confidence. However, the rating agencies won't monitor the transaction after issuance, since they carry a guarantee from Freddie.

While loans to apartment and condominium complexes have performed poorly, Freddie says it's cherry-picking of quality collateral has helped preserve its delinquency rate on these loans at 0.09%, a far cry from the industry average above 5%.

"We never went for those loans with aggressive underwriting practices," said David Brickman, vice president of multifamily and CMBS Capital Markets for Freddie.

"Our book is pretty solid," he said.

So far, both Freddie and Fannie Mae (FNM) have held multifamily loans they purchase on their books without securitizing them. This move is expected to free up Freddie's capital, so it can invest more in multifamily loans.

On the current deal, depending on market response, Freddie may invest in one of the classes, Brickman said.

"We are not committed to buying, but intend to support the program if needed," he said.

Freddie's Brickman added he expects the company to do more such deals. Its Capital Market Execution program has a pipeline of $1 billion loans that could be pooled into another deal.

"The pipeline makes it likely that we're going to see more such deals regularly, going forward," he said.

-By Anusha Shrivastava and Prabha Natarajan, Dow Jones Newswires; 201-938-2371; anusha.shrivastava@dowjones.com