Fannie Mae and Freddie Mac said they will ramp up their purchases of some $200 billion in delinquent home loans that the two government-controlled mortgage-finance companies have guaranteed. To do so, the entities are expected to issue more debt, The Wall Street Journal reported Feb. 13.
Fannie and Freddie are required to buy non-performing loans when they modify mortgages or when the loan has been delinquent for 24 months. But now they are planning to buy more loans that are 120 days or more past due. The delinquent loans were packaged into mortgage-backed securities now held by pension funds, insurance companies and other investors, the Journal reported.
Freddie said it would buy "substantially all" of its loans that are 120 days or more delinquent. The company had nearly $70 billion of such loans it had guaranteed at the end of December. Fannie said it would "significantly" increase its purchases over the next few months and had $127 billion of loans that were 120 days or more past due, the Journal reported.
According to analysts at Barclays Capital, Freddie's funding needs are expected to be $10 billion to $20 billion, while Fannie would need to raise about $60 billion, according to the Journal. Citi analysts said that most of the debt will be issued as discount notes, which are short-term debt securities that are sold at a discount to their nominal value and sell at face value. Analysts said that Fannie is likely to also tap the debt market with notes that mature between two years and 10 years, the Journal reported.