Government-sponsored entity Freddie Mac (FRE: 0.00 N/A) on Friday filed a report with the Securities and Exchange Commission acknowledging the Federal Housing Finance Agency, acting as Freddie's conservator, will soon request an additional $30 to $35 billion from the Treasury Department under the $100 billion senior preferred stock purchase agreement, through which the Treasury is required to provide funds whenever Freddie reports a negative net worth. Freddie drew $13.8 billion under the agreement when it reported weak third-quarter results in November, suggesting a trend of increasingly great financial need.

On the same day Freddie's filing hinted at growing federal need, reports came out of Fannie Mae (FNM: 0.00 N/A) that the banking giant cut hundreds of local jobs from its Washington headquarters even as it added staff "elsewhere" to manage an influx of defaults and foreclosure threats, according to a report published Friday by Bloomberg. Fannie similarly faces the conservatorship by the government, and participation with the other GSEs in the Federal Reserve's agency mortgage-backed security purchasing program.

The only agency appearing to report growth while the others struggle with cutbacks and funds shortages is Ginnie Mae, which has touted issuance that surpassed both Fannie and Freddie in the latter months of 2008. Ginnie has been reported in discussions with President Obama for an increase in staff to help manage the influx in mortgage-backed securities issuance. Ginnie's president, Joseph Murin, told American Banker last week the company is seeking 30 full-time staffers to supplement the 61 individuals currently employed — a 50 percent increase in staff.

With the wealth of evidence supporting Ginnie's growth, it seems unlikely it would be the agency with the smallest presence on the Fed's book of MBS purchases. According to data published Friday by the Fed, Ginnie has received the promise of $4.25 billion in MBS purchases so far through the program, while Fannie and Freddie enjoy $20.2 billion and $28.17 billion, respectively. It's unclear now whether the Fed's purchases — not all of which have completed — demonstrate Ginnie's ability to operate without government funds. With more than $447 billion left in its MBS purchase program, the Fed's spending actions going forward are likely to reflect which agency bears the greatest need.

Write to Diana Golobay at diana.golobay@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

(Update 1)

Key industry analysts have been raising a red flag in the past few weeks regarding the possible impact of a plan that would allow bankruptcy judges to modify the terms of mortgages during debt restructuring, suggesting that allowing so-called cramdowns to take place will likely lead to further significant write-downs in an already battered secondary mortgage market — leaving banks with even larger-than-expected holes on their balance sheets.

Analysts at Bank of America (BAC: 7.29 -0.14%), while suggesting on Jan. 13 that such provisions would likely lead to a spike in bankruptcy filings, also said that aspects of the proposed bankrupcy law would serve to limit potential investor losses. In particular, the legislation as proposed establishes a floor on how much debt could be crammed down by a judge, while the fact that all assets must be disclosed to the court in filing for bankruptcy would prevent borrowers from going BK purely to obtain a lower payment.

Nonetheless, many analysts remain concerned. Bloomberg's Jody Shenn noted in a Jan. 12 story that analysts at Keefe, Bruyette and Woods projected that the cram-down legislation would speed losses to most MBS investors, driving downgrades anew and placing banks under renewed capital pressure.

There are other issues to be considered here, of course, that are more nuanced. Among them is the role of private mortgage insurers, who generally will not cover losses tied to a borrower bankruptcy. Bank of America analysts called attention to this issue on Jan. 21 — and it's a vital issue for any investor. Here's why: most MBS deals using mortgage insurance as a form of credit enhancement have thinner "padding" for investor losses, meaning that cram-downs would eat through overcollateralization at a faster rate for MI-enhanced deals than for other MBS deals. (Can you spell d-o-w-n-g-r-a-d-e?)

And just think of the perverse incentives here, too: on a mortgage involving MI, the servicer and investor must get the MI provider to sign off on any loan modification — how likely will the MI provider be to do so, when they just push losses directly onto the investor via a borrower bankruptcy?

Bloomberg's Shenn addressed the ongoing buzz among analysts again earlier this week, noting that a good number of private-party MBS deals — viturally every prime and Alt-A deal done — also have so-called "carve-out provisions" in them that allocate some bankruptcy losses among all investors, rather than the traditional bottom-up, first-loss approach traditionally seen in most structured deals.

There is upside here, however, as analysts at BofA, and Barclays Capital have all noted in recent weeks: the downside risk of bankruptcy as contemplated under the proposed change would be so severe for investors and servicers that both parties would likely have a strong (and perhaps perverse) incentive to modify loans, without having to worry about violating the terms of the pooling and servicing agreements that bind their efforts. Of course, the question is which investors and what kind of securities, as always.

But the bottom line to be gleaned from the above is this: there is always a law of unintended consequences when large-scale and complex changes are contemplated by regulatory and government agencies. Cram-downs are clearly no exception.

Write to Paul Jackson at paul.jackson@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

In a matter of hours, John Thain — who stepped down Thursday from his position as president of global banking and wealth-management at the newly combined Bank of America Corp. (BAC: 7.29 -0.14%) and Merrill Lynch & Co. — was replaced by Bank of America's General Counsel Brian Moynihan.

The naming of Brian Moynihan, 49, as Thain's replacement might suggest Charlotte-based Bank of America is now firmly in control of Merrill after an attempted power-sharing agreement with Thain.  Moynihan is considered one of several possible successors for the 61-year-old Lewis, should he retire; Although, Lewis has said he would remain CEO until at least 2010.

Bank of America isn't offering details surrounding the resignation of Thain, who was reportedly asked to step-down by CEO Ken Lewis in a short meeting Thursday. The only public mention of Thain's resignation came in press release announcing Moynihan's appointment: "Moynihan replaces John Thain who is leaving the company," the press release read. That was the extent of it.

John Thain, 53, received wide-spread praise on Wall Street after agreeing in September to sell troubled securities firm Merrill, which was on shaky ground because of a crisis of confidence among investors and partners. But after repeatedly underestimating Merrill's capital needs, observers began to question Thain's credibility. Most recently, Merrill posted a $15.31 billion quarterly-loss, causing Bank of America to seek additional aid from the government, as Thain allegedly lobbied behind the scenes for a multimillion dollar bonus.

According to CNBC, Thain even hired famed decorator Michael Smith — chosen by the the Obama family to decorate the White House — to redecorate his downtown Manhattan office last year at a cost of $837,000, during a time when his company was processing lay-offs.

Bloomberg reported Lewis began to lose confidence in Thain in December, when he learned of Merrill’s larger than expected loss from members of his own merger team, according to a person familiar with Lewis. Lewis indicated that he thought Thain should have been more proactive in keeping him apprised of the results, according to this person, Bloomberg said.

Bank of America emphasized in their announcement Thursday that the "change in leadership in no way reflects a significant change in direction for the Global Banking or wealth management units." And Lewis expressed the utmost confidence in Moynihan to successfully carry-out the position's duties.

Previous to the merger with Merrill Lynch, Moynihan ran Global Corporate and Investment Banking for Bank of America. Before that, he was President of Global Wealth and Investment Management at the company.

"Brian Moynihan is a strong manager and one of those people who can effectively envision strategy and execute," Lewis said. "He has excelled at everything we have asked him to do."

Write to Kelly Curran at kelly.curran@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

The number of mortgages 90 or more days delinquent continued to rise at Freddie Mac (FRE: 0.00 N/A) during December 2008, reaching 1.72 percent of the GSE's total single-family mortgage portfolio, the company reported Friday morning. That's a jump of 62.2 percent from year-ago levels, and up 20 basis points from a 1.52 percent level reported for November 2008 — not surprisingly, as the nation's housing woes have spread, Freddie Mac has posted a monthly rise in delinquencies throughout the entirety of last year.

Freddie, who along with sister mortgage financing giant Fannie Mae (FNM: 0.00 N/A) was siezed by regulators in Sept. 2008, saw its holdings of mortgage-related investments shrink at a 1 percent annualized rate in December, as a slowing purchase volume was offset by a jump in net sales activity. The mortgage giant saw the aggregate unpaid principal balance of its retained portfolio decline to $804.76 billion at the end of Dec., despite a drop in Freddie's rate of liquidations during the month.

Despite the portfolio shrinkage, Freddie said it entered into $25.3 billion in net mortgage purchase and sale agreements during the month, the highest level of commitments since June of last year and well above the $14.97 billion in commitments during November 2008.

As it has throughout 2008, Freddie also continued to add to the whole loans held in its retained portfolio, while also continuing to shrink away from the non-agency MBS market; holdings of private-party MBS fell from $199.8 billion in Nov. to $197.9 billion during Dec., Freddie said; that number is well below the $233.8 billion the GSE held one year earlier.

Slowing purchases may have been a foreshadowing of a pickup in Federal Reserve-led buying of agency securities to start 2009, as the Fed began a program this month to purchase $500 billion in agency securities over the next two quarters.

The Fed purchased more than $19 billion in agency mortgage-backed securities for the week ending Jan. 21, bringing total agency MBS purchases to $52.6 billion so far this year. See full story.

Write to Paul Jackson at paul.jackson@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.