Freddie Mac announced operational changes for purchasing delinquent loans from Mortgage Participation Certificates. The company said it would now purchase mortgages that are 120 days or more delinquent from pools underlying Mortgage Participation Certificates or “PCs”. Generally, the company purchased mortgages from PC pools shortly after they reached 120 days delinquency. The company noted that allowing the loans to remain in PC pools would enable its financial results to better reflect its expectations for future credit losses and would have the effect of reducing its capital costs.
Mortgage participation certificate is an instrument issued by a mortgage insurer, which constitutes an assignment of or which evidences the ownership by the assignee, of either an undivided share or interest, or the right to participate to a specified extent in a group of securities in a mortgage participation trust. Participation Certificates are securities issued by Freddie Mac where the underlying collateral is pools of mortgage loans. Structured Securities are single-class and multi-securities issued by the company as part of its resecuritization of previously issued Freddie Mac PCs and non-Freddie Mac mortgage-related securities.
Freddie Mac said it believes that the historical practice of purchasing loans from PC pools at 120 days does not reflect the pattern of recovery for most delinquent loans, which more often cure or prepay rather than result in foreclosures. The company noted that allowing the loans to remain in PC pools would enable its financial results to better reflect its expectations for future credit losses and would have the effect of reducing its capital costs. However, the expected reduction in capital costs will be partially offset by, but is expected to outweigh higher expenses associated with delinquent loans.
Freddie Mac said that the purchase of mortgages from the PCs would be in the event they are modified or a foreclosure sale occurs, or when the mortgages are delinquent for 24 months. The purchase of mortgage could also be 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 mortgage portfolio. The company said that from time to time, it reevaluates its delinquent loan purchase practices and alters them if circumstances warrant.
Earlier on Monday, the company said that it priced approximately Euro 3.0 billion of tendered Euro Reference Notes securities. The tender offer period expired on Friday, December 7, 2007, while the offers were priced for settlement on Thursday, December 13, 2007. Last month, Freddie Mac said that it slashed its quarterly dividend by 50% and added that it will issue $6 billion of non-cumulative perpetual preferred stock in order to meet mandatory target capital surplus as well as bolster its capital base in light of actual and anticipated losses. The company further said that the preferred stock is being offered through a syndicate of dealers headed by Lehman Brothers Inc. and Goldman, Sachs & Co. and added that an application has been made to list the preferred stock on the New York Stock Exchange.
The company reported a net loss for its recent third quarter that widened to $2.03 billion or $3.29 per share from $715 million or $1.17 per share a year ago, on higher credit-related expenses and losses on mark-to-market items on the company's portfolio of derivatives and credit-related items. During the latest quarter, the company recorded mark-to-market loses totaling $2.7 billion compared to mark-to-market losses of $1.5 billion in the previous-year quarter. Quarterly revenues were a negative $678 million compared to revenues of $91 million a year ago.
Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to support homeownership and rental housing. The company purchases single-
Source: RTTnews.com