Following the footsteps of Freddie Mac (see story on the featured articles section of StructuredFinanceNews.com), Fannie Mae is considerably increasing its purchases of delinquent loans from single-family MBS trusts.
Under the GSE's single-family MBS trust documents, it has the option to buy from its MBS trusts loans that are delinquent as to four or more consecutive monthly payments.
The delinquent loan purchases will help the agency,"preserve capital by reducing net funding costs and will thereby reduce the amount of additional draws from the U.S. Department of the Treasury," Fannie Mae said in a release. The purchases, according to the GSE, will not affect its foreclosure prevention activities, such as its work under the Making Home Affordable Program or HAMP.
The company will start to purchase these loans in March 2010. The first purchases will be reflected in the MBS pool factors that are released on the fourth business day of April. Fannie Mae expects to buy a considerable portion of the current delinquent population within a few months, although subject to market conditions, servicer capacity, as well as other constraints.
On Jan. 1, Fannie Mae adopted new accounting standards for transfers of financial assets and the consolidation of variable interest entities — SFAS 166 and SFAS 167. Because of this, the cost of purchasing most delinquent loans from MBS and holding them in portfolio will be less than the cost of advancing delinquent payments to security holders.
Fannie Mae will still review the economics of buying loans that are four or more months delinquent and might reevaluate its delinquent loan purchase practices as well as change them if circumstances warrant.
As of Dec. 31, the total dollar volume of all four- or more month delinquent loans in single-family MBS trusts was around $127 billion. Of that amount, around $82 billion backed outstanding 30-year, single-family amortizing fixed-rate MBS that are CL-prefix, according to Fannie .
Fannie Mae had approximately $45 billion of four or more months delinquent loans in non-CL prefix MBS. The GSE will be providing the market with additional information on these securities within the next two weeks.