To Raise Cash, Firm Sold Off $37 Billion In Mortgages
By Zachary A. Goldfarb
Washington Post Staff Writer
Saturday, September 27, 2008
New data from Freddie Mac appear to confirm what the government claimed when it seized the mortgage-finance giant earlier this month: The McLean firm was sharply cutting back on its role in supporting the mortgage market and facing potentially bigger losses on its loans.
Freddie Mac buys mortgages from lenders, supplying them with cash to make more loans. The company reported yesterday that it slimmed its portfolio of mortgages by $37.4 billion in August, a decline which, if it continued, would cut Freddie Mac's holdings in half within a year.
At the time, the company was striving to bolster its financial cushion by selling mortgage holdings for cash. It owned $760.1 billion in mortgages at the end of August.
Since being taken over by the government, Freddie Mac and its District-based rival Fannie Mae have been directed to buy more mortgages in an effort to strengthen the struggling mortgage market. The companies will be allowed to expand their portfolios to about $850 billion each.
Although both firms have begun to do so, the impact on the mortgage market has been muted. Interest rates declined significantly on mortgages after the government intervention but have climbed back to where they were before the takeover.
"Right now there are so many markets that are such in a state of disarray that you can't necessarily see the influence of any one player," said Jim Vogel, an analyst at FTN Financial. "It's possible that Fannie and Freddie are buying right and left, and it just doesn't make any difference right now."
In addition to buying mortgages, Freddie Mac and Fannie Mae also guarantee bundles of mortgages against default and sell them to other investors. In Freddie Mac's case, that business appeared stable, the new data show. Fannie Mae has yet to release similar data for August.
At the same time, Freddie Mac last month faced rising delinquencies -- borrowers who haven't paid their mortgages for 90 days or more. In August, 1.1 percent of Freddie Mac mortgages were delinquent, more than double the rate a year earlier.
Rising delinquencies can reduce the value of mortgages Freddie Mac owns and force the company to cover losses on loans it guarantees. The company has lost billions over the past year in that way.
As the company moves to strengthen its balance sheet, its government-appointed chief executive, David M. Moffett, is moving quickly to shake up top management, much as his counterpart is doing at Fannie Mae.
Moffett announced that he has eliminated the position of chief business officer, leading to the departure of Patricia L. Cook. Chief Financial Officer Anthony S. Piszel is also departing, to be replaced by senior vice president and controller David Kellermann. The company's chief lobbyist, Timothy J. McBride, is also leaving.
Raymond G. Romano will take on the new title of chief credit officer.
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