Freddie to the Rescue: Alt-A Purchase Commitment Means Additional Liquidity

Hat tip to Blown Mortgage’s Morgan Brown, who forwarded me a copy of a press advisory yesterday from Freddie Mac regarding the GSE’s move to inject additional liquidity into the troubled Alt-A lending market. In the statement, senior vice president Paul Mullings said Freddie will seek to provide some relief to seized-up Alt-A markets by purchasing more Alt-A loans on a forward basis:

“Specifically, Freddie Mac is providing 90-day forward commitment capability on a negotiated basis to experienced lenders with credit terms that will accommodate a majority of the fixed and adjustable rate Alt-A product, including many of the reduced documentation mortgages underwritten with appropriate credit risk offsets that Freddie Mac now purchases on a bulk basis through structured transactions. “Available credit terms specifically include reduced documentation mortgages under-written with appropriate credit risk offsets. This will give more Alt-A borrowers the security of being able to lock in their rate for up to three months.”

As HW readers know, Alt-A markets have ground to a halt in recent weeks, so this news should come as some relief to troubled Alt-A lenders including IndyMac and Impac — although the move clearly comes too late for others, including American Home. American Banker has some great coverage on this today as well:

Charles Coulter, Freddie Mac’s vice president of strategy and offerings management, said in an interview that some large Alt-A customers had asked the government-sponsored entity for the commitments to get “greater certainty around their ability to execute.” “Obviously, there’s a lot of turmoil in the market, and given the tightening and relative value of the agency guarantee, we wanted to support our customers in the market,” he said … Jim Vogel, an executive vice president of fixed-income research at First Horizon National Corp.’s FTN Financial Capital Markets, said Freddie’s move should help originators. “Anything that gives mortgage bankers the ability to move ahead and commit even a portion of their pipelines is good for the market,” he said. Mr. Coulter said Freddie Mac has defined “a prudent credit box.” If lenders are willing to originate within its “well-defined credit parameters,” he said, it will expand its forward commitments to 90 days, essentially locking in a negotiated price for products that will meet tighter guidelines than what the agency is buying through its structured transactions group.

It should be noted that this purchase commitment does not affect Freddie’s portfolio cap, since these loans will not be securitized and sold off. Update: For those readers who might have taken this to mean that Freddie’s jumping in and bailing out Alt-A, read this post over at CR.

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