For Immediate Release
February 10, 2010
McLean, VA – Freddie Mac (NYSE: FRE) announced today that it will purchase substantially all 120 days or more delinquent mortgage 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, 2010, and the corresponding principal payments would be passed through to fixed-rate and ARM PC holders on March 15 and April 15, respectively. 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 and changing economics. In addition, the delinquent loan purchases will help Freddie Mac preserve capital and reduce the amount of any additional draws from the U.S. Department of the Treasury. The purchases would 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.
The release continues at Freddiemac.com
Karl Denninger at Market-Ticker writes:
What this means is that all the defaulted loans in these packages that Freddie bought up, bundled up and then puked out into the marketplace are coming home.
To Freddie.
Well, at least initially.
But now, every one of these loan files is going to get the fine-tooth-comb treatment. And believe me, there’s gonna be a lot of lice found in there, along with more than a few cockroaches.
This is going to be a problem folks, because those loans in which reps and warranties (that is, the promises made to Freddie by the banks when they were sold to them) were breached due to a material falsehood of some sort will be, as a matter of fiduciary responsibility, puked back onto the bank involved.
Note that most of the “warehouse” funded brokers and such are already gone. They went under in 2007 and 2008. They’re done.
But those folks got their warehouse lines from the big banks. Countrywide (now BAC), Wells, WaMu (now absorbed), Chase, etc.
Now to be sure not all of these bad loans went bad because of some sort of fraud. Some were made to legitimate borrowers on legitimate terms with everything on the up-and-up – no lies, no schemes, income and assets were as represented, no fraud – but the borrower lost his job and, well, just doesn’t have any money.
But I’m willing to bet that a huge percentage of these – likely a majority and perhaps even a supermajority – had some element of fraud in them.
Those, my friends, are headed home, and will land like a millstone around the neck of the bank that tendered them.
Bet on it.
