Freddie Maps Reperforming-Loan Auctions
Freddie Mac plans to expand a program under which it funnels reperforming home loans into securitization pools.
A pilot version of the initiative was rolled out in July, with Freddie agreeing to sell $199 million of reperformers to New York-mortgage REIT Chimera Investment — which in turn would fund the purchase with the proceeds from a bond sale. Now comes word that the agency wants to complete a follow-up transaction by March 31.
After that, the expectation is that Freddie would conduct similar sales every few months via auctions aimed at mortgage-bond issuers with experience in managing high-risk asset pools. Sources point to REITs New York Mortgage Trust and PennyMac Loan Services as being among the agency’s potential counterparties.
Each of the asset purchases is expected to follow Chimera’s format. That transaction closed in October, with the REIT simultaneously bundling the loans into a securitization while retaining a first-loss position in the deal. Freddie guaranteed and bought the issue’s senior notes, which it is expected to sell at a later date.
The bond offerings are subject to the Dodd-Frank Act’s risk-retention rule.
The program is part of a broad push by Freddie to reduce illiquid holdings in its mortgage-product portfolio, with an eye toward keeping troubled borrowers in their homes. Most of the loans involved have been reperforming for less than six months or have fallen back into the early stages of delinquency, with an average loan-to-value ratio of about 70%. They include a large number of older option adjustable-rate accounts that were modified under the Federal Housing Finance Agency’s Home Affordable Mortgage Program, which expired Dec. 31.