Government-backed mortgage giant Freddie Mac FMCC recently announced that it will be selling $410 million of deeply delinquent mortgage loans in a continued effort to clean up its balance sheet.
The Federal Housing Finance Agency (FHFA) is pressing Freddie Mac and cousin Fannie Mae FNMA to actively reduce their exposure to delinquent loans this year.
Following The Plan
Freddie Mac is currently accepting bids on three pools of loans with outstanding balances of $160 million, $141 million and $109 million respectively.
Freddie Mac spokesman Tom Fitzgerald recently explained to Bloomberg that this sale is all part of a long-term plan. “This transaction is consistent with Freddie Mac’s continued goal of reducing illiquid assets from its investment portfolio,” Fitzgerald said.
Recovering Value
While it’s unknown just how much the winning bidder will pay for this group of delinquent loans, Freddie Mac will look to take advantage of the recent recovery in the housing market.
Last July, Freddie Mac sold $659 million in non-performing loans to buyers such as Loan Star Funds, One William Street Capital Management LP and Ellington Management Group at a price of 76 cents per dollar of unpaid balance.
That price was up from an average price of 49 cents on the dollar for delinquent loans at the beginning of 2013.
Net Worth Sweep
Unfortunately for Freddie Mac shareholders, they will not see a dime from the sale no matter how well it goes. In 2012, the FHFA established a “net worth sweep” for Fannie and Freddie that declared that all of the entities’ profits from that point forward would be paid to the government.
Despite the government’s proclamation that shares of Fannie and Freddie are now essentially worthless, shareholders such as Bill Ackman are currently suing the government over the legality of the net worth sweep.
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