Freddie Mac to Repurchase Delinquent Mortgage Loans

Freddie Mac announced today that they intend on buying back an undetermined number of delinquent mortgage loans contained in securities that have previously been sold to investors. Mindful not to disclose the amount in which they will spend, Freddie Mac did reveal that the mortgage loans they are prepared to repurchase are from borrowers who are delinquent on their monthly mortgage payments by 120 days or more. However, analysts believe the unpaid principal balance on such loans is estimated to be nearly $70 billion.

Freddie Mac, and sister company Fannie Mae, are government-sponsored enterprises that guarantee the mortgage securities they sell. Freddie Mac's latest initiative to buy back the troubled loans is believed to be cheaper than actually guaranteeing the overdue payments. Under the Bush administration, Freddie Mac and Fannie Mae were effectively functioning under a cap of $400 billion to repurchase delinquent mortgage loans. Last year, the Obama administration lifted that cap and pledged to shield the agencies from unlimited losses through 2012, essentially yielding more latitude in buying back troubled mortgage loans.

In addition, Freddie Mac believes the repurchasing of the delinquent mortgage loans and adding them to their existing portfolio will assist in maintaining its capital, and will ultimately reduce the total drawn on the U.S. Treasury that is necessary to maintain operations. In a letter sent to Congress last week, Edward DeMarco, the Acting Director of the Federal Housing Finance Agency, stated, "It is my expectation that any net additions to their retained mortgage portfolios would be related to this activity."

-Robert Hyder