A mortgage investors' group is calling for Freddie Mac to change policies related to how delinquencies from recent storms affect certain credit risk transfer securities.

The group, the Association of Mortgage Investors, wants Freddie to adopt for all credit risk transfer deals certain policies that determine when "credit events" from storm-damaged collateral occur. Expenses and proceeds associated with credit events get passed through to investors.

The association would like Freddie Mac to wait 20 months after a servicer grants initial disaster recovery relief to a borrower before possibly declaring a credit event. This would align Freddie's policies with Fannie Mae's.

"We are disappointed that this guidance was not similarly adopted by Freddie Mac for a small number of securities issued early in the life of the CRT market," said AMI Executive Director Chris Katopis in a letter to executives at Freddie Mac and the Federal Housing Finance Agency.

While securities like CRT are largely governed by original contracts, language in the governing documents allows "Freddie to make changes to the debt agreement that 'will not adversely affect [noteholder] interests,'" Katopis said.

On average, about 5% of CRT-related loan pools have exposure to federal disaster areas, according to a recent Fitch Ratings report.

"Peak delinquencies typically occur about two or three months after a major event," said Grant Bailey, a managing director at Fitch Ratings, in the report. "While delinquencies remain higher over time than prior to the event, most troubled borrowers recover or prepay within 18 months."

Twenty percent of current government-sponsored enterprise borrowers affected by 2005's Hurricane Katrina experienced delinquencies. That percentage receded to under 5% within a year. Only 3% of the initial group of borrowers remained more than 180 days delinquent, according to Fitch.

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