Freddie Mac has agreed to sell more than a half-billion dollars in what it calls “deeply delinquent” loans from its investment portfolio to an as-yet unnamed buyer.
According to Freddie Mac, the deal will relieve the GSE from $659 million in unpaid loans when the transaction completes by the end of August. The sale was conducted via a competitive auction at the end of July that featured 22 prospective buyers and was, according to Freddie, executed indirectly through Bank of America affiliates Bank of America Merrill Lynch and Credit Suisse Securities.
This is the first such sale by the GSE, which, like its larger cousin, Fannie Mae, is looking for ways to lighten its burden, under government mandate. These GSEs guarantee about $4.5 trillion in mortgages that are mostly comprised of securities, and are required by federal regulators ‒‒ under whose control Fannie and Freddie have been since 2008 ‒‒ to reduce their non-performing holdings through conservatorship. Originally, both Fannie and Freddie sought to recoup their debts through loan modification and by selling foreclosed homes.
The news also come at a time when bond investors are demanding higher yields to protect themselves against losses on mortgages guaranteed by Freddie. Fannie had tried selling risk-sharing notes, which are not backed by the government, but they’ve performed poorly, leaving investors with a definite lack of confidence in the GSEs.
Freddie Mac owns or backs nearly $2 trillion worth of mortgage and securities debt. According to its monthly disclosure statement, Freddie held $169.1 billion in loans as of June 30, and has started to repackage certain mortgages into new guaranteed bonds. The company’s portfolio was around $420 billion by the end of June, and Freddie had about $40 billion in non-accruing loans at the end of the first quarter.
Worth keeping an eye on is the recent surge in interest among certain investment firms ‒‒ Lone Star Funds and Ellington Management Group are two outspoken examples ‒‒ in acquiring poorly performing home loans. However, the full terms of the transaction, conducted on August 1, will be released later in the month.