Freddie Mac Lays Out Plan for Loan Buyouts

Freddie Mac said it plans to purchase "substantially all" mortgages delinquent by 120 days or more from its fixed- and adjustable-rate participation certificate securities, and detailed the timing for the loan buyouts that Wall Street researchers and investors have been anticipating this year. Freddie said its purchases of these loans are set to be reflected in the PC factor report published after the close of business March 4 and corresponding principal payments are slated to be passed on to fixed-rate and ARM PC holders on March 15 and April 15, respectively. The government-sponsored enterprise also said that it plans to start disclosing in its monthly volume summary the number of loans that are 90 days or more delinquent in related fixed-rate 30-year and 15-year PCs and in ARM PCs. The loan buyouts stem 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," Freddie said, confirming catalysts that Wall Street analysts had said would likely spur buyouts this year. The GSE added that "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" and would not affect its activities under the federal Making Home Affordable program. Since 2007 Freddie has had operational procedures in place that call for it to purchase mortgages that are 120 days or more delinquent from PCs when 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 its portfolio. It said it could change its loan buyout policy in the future.