Fannie Mae-No Politics (FNMA)

[Bruce A Thompson]

Freddie Mac to Sell $659 Million in Defaulted Home Loans
6:42p ET August 1, 2014 (Dow Jones) Print
Freddie Mac to Sell $659 Million in Defaulted Home Loans
By Nick Timiraos
Freddie Mac has agreed to sell $659 million in defaulted home loans from its investment portfolio, the company said on Friday.
The sale is the first of its kind by the mortgage finance giant, which together with its larger rival, Fannie Mae, has operated under government control for six years.
For years, industry analysts and distressed-loan investors have looked for sales of nonperforming mortgages by Fannie and Freddie, but they haven't materialized until now.
Freddie didn't disclose the buyer or the terms. It said the deal will close later this month.
The distressed mortgage auction drew 22 bidders, the company said, a sign of strong interest that could presage additional sales.
"It was certainly well received in the market, and we're going to be looking for opportunities to reduce exposure in our investment portfolio, " said Thomas Fitzgerald, a company spokesman.
Fannie and Freddie guarantee around $4.5 trillion in mortgages, the vast majority of which are issued as securities. The companies also maintain investment portfolios that consist of whole loans and securities.
Both companies are required to shrink those investment portfolios while they operate under a legal process known as conservatorship. Freddie's portfolio stood at nearly $420 billion at the end of June, of which $169 billion consisted of whole mortgage loans. The company said it had around $40 billion of loans in nonaccrual status at the end of March, according to federal filings.
The firms' federal regulator last year directed the companies to reduce their holdings of illiquid assets, which could include nonperforming mortgages.
In recent years, executives at Fannie and Freddie have said that they regularly evaluate mortgage sales but that such deals wouldn't be economic. Prices for distressed assets have firmed up over the past year amid rising home prices.
Over the past two years, the U.S. Department of Housing and Urban Development has ramped up sales of thousands of nonperforming loans guaranteed by the Federal Housing Administration. The prices reached on those loan sales have increased steadily.
Fannie and Freddie have generally resisted writing down loan balances for borrowers who fall behind on their payments, instead opting to cut monthly payments by reducing interest rates and offering forbearance, in which payments aren't required on a portion of the loan. Two years ago, their regulator barred the companies from participating in a government program that encouraged loan write-downs.
Sales of defaulted mortgages to third-party investors could allow for some of those loans to receive a principal write-down. Investors stand to make money if trimming the loan balance is able to get the borrower to resume making payments on the mortgage.
Write to Nick Timiraos at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires
August 01, 2014 18:42 ET (22:42 GMT)
Copyright (c) 2014 Dow Jones & Company, Inc.DN201408010132482014-08-01 22:42:00.0006362DIN4FOQKO5LU0LOT88NOQLDJNF