Wednesday, February 10, 2010

Freddie Mac to Buy Out Seriously Delinquent Loans

by Calculated Risk on 2/10/2010 12:26:00 PM

Press Release: Freddie Mac To Purchase Substantial Number of Seriously Delinquent Loans From PC Securities

Freddie Mac (NYSE: FRE) announced today that it will purchase substantially all 120 days or more delinquent mortgage loans from the company's related fixed-rate and adjustable-rate (ARM) mortgage Participation Certificate (PC) securities.

The company's purchases of these loans from related PCs should be reflected in the PC factor report published after the close of business on March 4, 2010, and the corresponding principal payments would be passed through to fixed-rate and ARM PC holders on March 15 and April 15, respectively. The decision to effect these purchases stems from the fact that the cost of guarantee payments to security holders, including advances of interest at the security coupon rate, exceeds the cost of holding the nonperforming loans in the company's mortgage-related investments portfolio as a result of the required adoption of new accounting standards and changing economics. In addition, the delinquent loan purchases will help Freddie Mac preserve capital and reduce the amount of any additional draws from the U.S. Department of the Treasury. The purchases would not affect Freddie Mac's activities under the Making Home Affordable Program.
This makes sense (since the costs are lower to buy the nonperforming loans back), and this has been in the works since Treasury increased the GSE portfolio limits in December. Back in December, Credit Suisse analysts argued this would happen (from Bloomberg):
“This announcement increases the prospect of large-scale voluntary buyouts by removing the portfolio cap hurdle and helping funding by potentially increasing debt-investor confidence,”