The pace of buyouts in delinquent loans in Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) mortgage-backed securities portfolios (MBS) is set to boom in 2010 as new accountancy rules come into effect, changing the nature of securitization.
On New Year's Day, the two government-sponsored enterprises (GSEs) are adopting the Financial Accountancy Standards (FAS) 166 and 167 which will "remove a significant disincentive for buyouts," and that as a consequence "early 2010 high premium constant prepayment rates (CPRs) are likely to be elevated compared to the CPRs of recent months," according to market research released by securitization analysts at Deutsche Bank.
Fannie and Freddie buyouts through 2009 were relatively muted compared to Ginnie Mae. The new FAS 166 and 167 will mark a switch in capital constraint requirements, whereas these loans are typically marked down to 40% of face value. The new accountancy rules allow the agencies to place the loans on balance sheet at par instead.
Further, the buyouts remain in the GSEs best interest: "Selling MBS would also helps the GSEs comply with the requirement to shrink their portfolios by 10% in 2010," the analysts add. The consolidated balance sheet of the two agencies is around $4.5trn.
Write to Jacob Gaffney.
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