Freddie Mac says it will purchase substantially all 120+ day delinquent loans from the company's related fixed-rate and adjustable-rate (ARM) mortgage Participation Certificate (PC) securities.
The company's purchases of these loans from related PCs should be reflected in the PC factor report published after the close of business on March 4, and the corresponding principal payments would be passed through to fixed-rate and ARM PC holders on March 15 and April 15, respectively, Freddie Mac announced in a statement Wednesday.
The decision to effect these purchases stems from the fact that the cost of guarantee payments to security holders, including advances of interest at the security coupon rate, exceeds the cost of holding the nonperforming loans in the company's mortgage-related investments portfolio as a result of the required adoption of new accounting standards SFAS 166 and 167. The company also cites "changing economics" as a cause for the decision.
Freddie Mac says the delinquent-loan purchases will also help preserve capital and reduce the amount of any additional draws from the Treasury Department. The purchases will not affect Freddie Mac's activities under the Making Home Affordable program.
In December 2007, Freddie Mac announced operational changes for purchasing delinquent loans from PCs. The company stated that, among other conditions, it will purchase mortgages that are 120 days or more delinquent from PCs when the cost of guarantee payments to security holders, including advances of interest at the security coupon rate, exceeds the cost of holding the nonperforming loans in its portfolio.
On Jan. 1, Freddie Mac adopted SFAS 166 and SFAS 167 for transfers of financial assets and the consolidation of variable interest entities. As a result, the cost of purchasing most delinquent loans from PCs and holding them in portfolio will be less than the cost of continued guarantee payments to security holders. Freddie Mac adds that it will continue to review the economics of purchasing loans 120 days or more delinquent and may alter its purchasing practices if circumstances warrant.
SOURCE: Freddie Mac