29 Dec 09 Fannie Mae and Freddie Mac Ready to Buy Delinquent Home Mortgage Loans
According to Credit Suisse Group analysts, the U.S. government’s expanded capital backstops and portfolio limits for Fannie Mae and Freddie Mac increase “the prospect of large-scale” purchases by the companies of delinquent mortgages out of the securities they guarantee. The Treasury Department announced Thursday that the two mortgage-finance companies, which were seized by the United States almost 16 months ago, could tap an unlimited amount of capital for three years, up from as much as $200 billion each. It reworked caps on Fannie Mae and Freddie Mac’s mortgage-asset portfolios to require the holdings to fall to $810 billion each by Dec. 31, 2010, rather than about $690 billion. “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,” Mahesh Swaminathan and Qumber Hassan, the Credit Suisse debt analysts in New York, wrote in a report Monday.
Analysts including those at Credit Suisse and J.P. Morgan Chase have been predicting a spike in the companies’ buyouts of home mortgage loans from their securities early next year. Aside from more purchases being required by the debt’s contracts as additional home loans get modified under the government’s Making Home Affordable program or fall more than two years past due, accounting-rule changes will force all mortgage loans in their securities onto their balance sheets, limiting the financial impact of actually buying them. The portfolio-limit adjustment will give Fannie Mae and Freddie Mac “enough headroom” to absorb the approximately $220 billion “pipeline” of delinquent FHA home loans in their securities without having to sell other bonds, the Credit Suisse analysts wrote. The home loan buyouts may occur over one or three months, the analysts wrote.
