Previously delinquent loans that Freddie Mac was required by contract to repurchase from its Mortgage Participation Certificate (PC) pools are about to return to the secondary market. The company announced this morning that the loans from those repurchased pools which are now current and performing will be securitized and sold.
The loans, those from the pools that have returned to current status and have been performing for a minimum of four months without being modified, will be packed in pools that will be identified with a new "R"prefix. The program is expected to begin this month with the first group of loans selected from among those that have been performing for at least 12 months at the time of securitization. Freddie Mac said that these PCs may back new Freddie Mac Real Estate Mortgage Investment Conduits (REMIC) and Giant securities in the future.
Freddie Mac announced in February 2010 that it was repurchasing an estimated $71 billion of delinquent loans from the PC pools, a requirement that was triggered by a change in accounting standards for transfers of financial assets. The company said then that the cost of purchasing most delinquent loans from PCs and holding them in portfolio would be less than the cost of continued guarantee payments to security holders. At that time, quoting figures as of December 31, 2009, the company said that repurchases would consist of:
- 258,500 loans in its fixed-rate PC pools that were 120+ days delinquent. Unpaid principal totaled $49.8 billion
- 72,894 loans in its adjustable-rate pools that were 120+ days delinquent. Unpaid principal totaled $19.1 billion.
Fannie Mae also repurchased a significant number of these assets.
"By securitizing mortgage loans that were delinquent but reinstated to performing status, Freddie Mac will provide additional needed liquidity to the market using our traditional mortgage security vehicles," said Mark Hanson, Freddie Mac vice president, Securitization and Cash Execution. "This new avenue for securitization also will provide more flexibility for Freddie Mac to manage its mortgage-related investment portfolio."
