Freddie Mac Changes Delinquent Loan Purchase Guidelines

Freddie Mac says it will now generally purchase mortgages that are 120 days or more delinquent from pools underlying mortgage participation certificates (PCs) when the mortgages have been modified; a foreclosure sale occurs; the mortgages are delinquent for 24 months; or 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.

Freddie Mac had generally purchased mortgages from PC pools shortly after they reached 120 days of delinquency. However, the company 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 foreclosure.

Allowing the loans to remain in PC pools will provide a presentation of its financial results that better reflects Freddie Mac's expectations for future credit losses. Taking this action will also have the effect of reducing capital costs, the company adds. The expected reduction in capital costs will be partially offset by – but is expected to outweigh – greater expenses associated with delinquent loans.


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