Freddie Mac's Mortgage Holdings Shrink, Delinquencies Remain Flat

Mortgage giant Freddie Mae reduced the size of its mortgage portfolio in May, while the delinquency rate of single-family home loans it guarantees stood unchanged from the previous month.

According to the McLean, Virgina-based GSE’s monthly summary report released Friday, its total mortgage portfolio decreased at an annualized rate of 4 percent last month. The drop can be largely attributed to the company’s purchases of home loans it had sold to investors that were 120 or more days past due.

In February, Freddie announced that it would buy back all seriously delinquent loans held by its securities investors – a move prompted by new accounting standards that require issuers to account for certain securitized assets on their own books.

Under these new accounting rules, Freddie Mac determined it was more cost efficient to repurchase the

delinquent loans than continue making guarantee payments to securities holders when the losses showed up on the GSE’s own financial records as well.

Because of the buyouts, Freddie’s overall 120-plus day delinquencies dropped again in May, although the decline was much smaller, at only 1-2 percent, according to commentary from Barclays Capital.

In addition, the research firm noted, the 90-day delinquency bucket – which is a leading indicator for 120-plus-delinquency buyouts – was almost flat month-to-month, while the 90- to 120-day delinquency transition rates were up for the first time.

Based on these stats, Barclays said, “Assuming that the 90-120 transition increases another 10 percent in June, there should be a 5-10 percent increase in buyouts in the August report,” as the recent slowing trend reverses.

The company’s report shows that refinance-loan purchase and guarantee volume also dropped, totaling $17.1 billion in May, down from $18.4 billion in April.

The unpaid principal balance of Freddie Mac’s mortgage-related investments portfolio decreased by an annualized rate of approximately 14.5 percent, or $9.2 billion, to $748.1 billion.

The GSE’s single-family delinquency rate remained unchanged at 4.06 percent in May. April marked only the second month in more than three years the delinquencies fell for the company. Freddie’s multifamily delinquency rate increased, however, from 0.25 percent in April to 0.32 percent in May.

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