Freddie Mortgage Portfolio Shrinks in May after Delinquency Buy-Outs

Mortgage purchases and issuance at government-sponsored enterprise (GSE) Freddie Mac (FRE) fell to nearly $25.2bn, from $26.1bn in April — bringing the year-to-date total to $148.1bn so far in 2010. Refinance-loan purchase and guarantee volume at Freddie fell to $17.1bn in May, from $18.4bn in April, according to a monthly volume summary (download here). The aggregate unpaid principal balance of the GSE’s mortgage-related investments fell by $9.2bn. Additionally, the total guaranteed Participation Certificates (PCs) and structured securities issued fell at a 5.2% annualized rate in May. The GSE’s total mortgage portfolio decreased at an annualized rate of 4%, reversing the 3% growth in April. The monthly contraction in the portfolio arrives after Freddie wrapped up an initiative announced in February to purchase essentially all the single-family mortgages delinquent by 120 or more days out of its PC pools. The GSE’s single-family delinquency rate remained unchanged at 4.06% in May, while its multifamily delinquency rate jumped 7 basis points to 0.32% in May, from 0.25% in April. Freddie’s 120-plus-day delinquencies (download here) dropped again from last month, although at a smaller magnitude of 1-2% on average, according to Barclays Capital (BarCap) commentary today. Additionally, the 90-day delinquency bucket (download here) — which BarCap noted is a leading indicator for 120-plus-day delinquencies and buyouts — was almost flat month-on-month, compared with a 14% drop in March and a 8% drop in April. “The pattern suggests that roll rates and delinquency buyouts are likely to reverse its recent slowing trend and start picking up in the August prepayment report,” BarCap said. The 90-120 delinquency transition rates were up for the first time, analysts added. Assuming that the 90-120 transition increases another 10% in June, BarCap noted there should be a 5-10% increase in buyouts in the August report. “The trend has been consistent with our expectation that the recent decline in roll rates is partially attributable to strong seasonals, and as seasonals turns their heads, buyouts should pick up,” analysts said. Write to Diana Golobay. Disclosure: the author holds no relevant investments.

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