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'Piggyback' Loans Allowed by Freddie Fed Mortgage Risks
Freddie Mac chief executive Richard F. Syron cited the loan-to-value ratio in his 2006 letter to shareholders.
(By Emile Wamsteker -- Bloomberg News)
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For the mortgage insurers, the issue was more than academic: piggybacks were cutting them out of the picture.
OFHEO officials declined to comment on the complaint and would not discuss their communications, if any, with Freddie Mac about piggyback loans.
The company's "disclosures are subject to OFHEO's review and comment as part of our regular supervisory process," said Corinne Russell, an OFHEO spokeswoman. "We do not comment publicly on our supervisory discussions."
The issue has become harder to ignore as home prices have declined, eroding whatever equity borrowers had in their homes.
Even excluding piggybacks, the percentage of loans with high ratios has been creeping up this year.
At the end of the third quarter, 17 percent of Freddie Mac's mortgage investments had ratios of more than 80 percent. Overall, for 1 percent of Freddie Mac's holdings, the loan-to-value ratio was more than 100 percent, meaning that the real estate serving as collateral for the loans was worth less than the loans.
Freddie Mac is predicting it will have to set more money aside to cover losses on mortgages made in 2006 and 2007, partly because they had "lower amounts of third-party insurance coverage and higher loan balances at the time of origination than our historical experience," according to its latest quarterly report.
