Freddie Mac's new retained portfolio purchase commitments dipped more than expected in January. This trend is not expected to change going forward, analysts said.

Freddie's new retained portfolio purchase commitments went down last month to $8.2 billion from $25.6 billion in December mainly due to the fact that the GSE is not really finding attractive MBS-to-debt spreads.

"According to Freddie Mac, they are not seeing attractive MBS-to-debt option adjusted spreads, but this is in contrast to what our fixed-income group is seeing and what Fannie Mae has said they are seeing," wrote equity analysts from JPMorgan Securities.

They added that this is probably due to differences in the key assumptions used including volatility and prepayment rates assumed in the various option-adjusted spread models.

Commitments outstanding also decreased slightly to $23 billion at Jan. 31 from $25.6 billion at Dec. 31.

Aside from these, PCs outstanding (which represents the GSE's guarantee business) dipped at an annualized rate of 2.4%. JPMorgan said that the outlook for this side of Freddie's business is weak in the near term because of several reasons.

They cited the fact that Freddie lost market share to Fannie Mae last month. Freddie's usual share of the market ranges from 40% to 45%. In January, they only had a 30% share of the business. This downward trend was caused by the loss of the alliance with Bank of America as well as lower deliveries in January from Freddie's key partners Wells Fargo and ABN AMRO. This is in contrast to Fannie's key partners, which actually produced higher volumes, said analysts.

Aside from lower deliveries from its key partners, Freddie volumes might have also suffered because its MBS had gotten relatively cheaper compared to rival Fannie Mae's mortgage-backeds. This is probably due to concerns about higher liquidations on Freddie's securities, explained analysts. But they also said that they had heard that Freddie's securities have recovered half of this dip versus Fannie's MBS.

Even though Freddie Mac's new business purchase volume went down by about a staggering 40% in January, representatives from the GSE said that this would not be reflective of future performance, and they fully expect to maintain their historical market share against Fannie.

Representatives from Freddie attribute most of the decline to a change in national lender delivery patterns. They stated that Freddie received an above trend volume of deliveries in December, which negatively impacted volume in January. There were also lender operational issues that relate to the GSE's A-minus program. Under the A-minus program, lenders could sell loans to the Agency. However, Freddie increased fees related to the program and lenders did not have systems in place to implement the change thus lowering the amount of sales.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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