Shortly after Freddie Mac announced it would buy out substantially all of its 120+ day delinquencies, Fannie Mae said it intends to increase significantly its purchases of delinquent loans from single-family mortgage-backed securities (MBS) trusts.
Under Fannie Mae's single-family MBS trust documents, the company has the option to purchase from its MBS trusts loans that are behind by four or more consecutive monthly payments.
Like Freddie, Fannie said the delinquent loan purchases will help preserve capital by reducing net funding costs and will thereby reduce the amount of additional draws from the U.S. Department of the Treasury.
The company will begin to purchase these loans in March, with the first purchases being reflected in the MBS pool factors released on the fourth business day of April. Fannie Mae expects to purchase a significant portion of the current delinquent population over the course of a few months, subject to market, servicer capacity and other constraints, the company says.
Also like Freddie, Fannie Mae noted that its adoption of accounting standards SFAS 166 and 167 made the cost of purchasing most delinquent loans from MBS and holding them in portfolio less than the cost of advancing delinquent payments to security holders.
As of the end of December 2009, the total dollar volume of all four or more month delinquent loans in single-family MBS trusts was approximately $127 billion. Of that amount, approximately $82 billion backed outstanding 30-year, single-family amortizing fixed-rate MBS.
SOURCE: Fannie Mae