Freddie Mac Plans to Buy Out 120-Days Delinquent Mortgages

Government-sponsored mortgage securitizer Freddie Mac (FRE) anounced today that it will purchase a substantial number of seriously delinquent loans from its fixed and adjustable-rate mortgage-backed participation certificate securities.

FM: [The mortgage giant said it will buy] “all 120 days or more delinquent mortgage loans from the company’s related fixed-rate and adjustable-rate (ARM) mortgage Participation Ssecurities [PC].

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”. [emphasis added]

According to initial analyst estimates, the unpaid principal balance on Freddie Mac’s 120 days delinquent loans is at nearly $70 billion. The company is expected to raise capital to buy out these loans, through the sale of its debt to investors and the sale of mortgage pools.

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