Freddie Mac Seeks to Get Mortgages' Paperwork
Thursday, September 13, 2007
Freddie Mac has gone to court to protect its interests in a $796.8 million portfolio of home mortgages issued by a financially troubled lender, according to papers filed in U.S. Bankruptcy Court.
The McLean mortgage finance company is asking a bankruptcy court in Wilmington, Del., to order the swift transfer of paperwork for 4,547 mortgages to Freddie Mac from American Home Mortgage Investment, a New York company that has filed for bankruptcy protection.
U.S. Bankruptcy Court Judge Christopher S. Sontchi scheduled a Sept. 20 hearing in Wilmington to determine whether Freddie Mac would assume servicing the loans.
The court fight represents a larger clash between troubled lenders such as American Home and financiers such as Freddie Mac, Ginnie Mae and several big Wall Street banks that own or invest in those mortgages.
American Home and other troubled mortgage lenders are trying to hold onto as many loans as possible so they can sell their loan-servicing divisions and use the money to pay creditors.
Mortgage finance companies, meanwhile, are trying to gain control of the loan files from lenders' servicing departments. Freddie Mac and others are concerned that the loans could lose value as investments if lenders like American Home do not distribute homeowners' monthly payments to banks, insurance companies and tax authorities, some analysts said.
"Freddie Mac is saying, 'just get me out of here.' It wants to be able to see what is happening to those loans," said Christopher Thornberg, a mortgage analyst with Beacon Economics. "What if the loan company is using those payments to service their own bills? They don't know what is happening."
In its court filing, Freddie Mac raised the possibility that some homeowners could lose their houses if American Home failed to keep insurance and tax payments current.
Freddie Mac said in its court papers that it was concerned that there was "the imminent risk that borrowers' insurance policies may lapse for non-payment, and real property tax bills will go unpaid resulting in increased tax liabilities and possible tax foreclosure sales."
Freddie Mac spokesman Michael Cosgrove declined to comment. A source close to Freddie Mac who was not authorized to speak publicly said the company wants to ensure that homeowners' payments are made to tax authorities and insurers but that there was no immediate threat that homeowners would lose their properties.
A spokesman for American Home declined to comment.
American Home filed for bankruptcy protection Aug. 6. The lender later reached an agreement with Freddie Mac and a large national loan servicer to quickly transfer thousands of loan files to Freddie Mac so the loans would still be serviced.
Freddie Mac said in court papers that American Home never intended to honor that agreement. The company has gone to court to force American Home to hand over the paperwork on the loans.
Freddie Mac has a total mortgage portfolio of $1.9 trillion, including home loans and related securities. In addition to American Home, Freddie Mac is trying to force HomeBanc to turn over its loans.
Staff researcher Richard Drezen contributed to this report.