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Author Topic: Freddie Mac Revises Delinquent Loan Guidelines  (Read 1660 times)

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The Web Team

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Freddie Mac Revises Delinquent Loan Guidelines
« on: December 10, 2007, 08:12:37 AM »
Freddie Mac revised its mortgage-purchasing guidelines to allow more badly delinquent loans to remain in participation-certificates pools, which show partial ownership of participating capital, as the loan agency continues to grapple with losses related to the credit crunch.

The government-sponsored entity now buys loans from the pools once they are delinquent for 120 days. In the future, however, Freddie Mac said it will base purchase decisions on additional criteria, including whether the mortgages have been modified; a foreclosure sale occurs; the mortgages are delinquent for 24 months; or the cost of guarantee payments to security holders, including advances of interest at the security coupon rate, exceeds the cost of holding.

The agency said it changed its guidelines due to its belief that the historical practice of purchasing loans from PC pools at 120 days does not reflect the pattern of recovery for most delinquent loans, which more often cure or prepay rather than result in foreclosure.

Freddie Mac said allowing the loans to remain in PC pools will provide a presentation of its financial results that better reflects Freddie Mac's expectations for future credit losses, and will reduce the company's capital costs. The expected reduction in capital costs will be partially offset by, but is expected to outweigh, greater expenses associated with delinquent loans.

Loan agencies such as Fannie Mae and Freddie Mac, grappling with losses and a worsening housing market, have moved to raise capital to remain in compliance with their regulatory requirements. They are raising billions of dollars through the sale of preferred stock, following mortgage issues that began over the summer. The issues severely restricted borrowers' ability to secure a nonconforming loan, one that doesn't meet the criteria to be purchased by loan agencies.

President Bush last week called on the Senate to pass legislation that would reform oversight of Fannie Mae and Freddie Mac.
The Web Team


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