Fannie Mae to Buy Thousands of Delinquent Mortgages

The mortgage business is going through some turmoil. Fannie Mae and Freddie Mac are looking for solutions to stop the proverbial bleeding.

Earlier this week, Fannie Mae announced that it was planning to purchase between 150,000 and 200,000 delinquent mortgage loans in March from single-family mortgage-backed security trusts. The loans targeted by this buyout are the ones which are at least 120 behind in payment. The organization also plans to purchase thousands more loans over the course of several months until the number of delinquent mortgage loans has been “substantially reduced.” Fannie Mae has not released any numbers referring to subsequent months after March. However, according to Barclays Capital, the number of delinquent mortgage loans could be reduced by as much as 30 percent if the mortgage lender continues the pace that is already planned for March.

At the end of 2009, Fannie Mae reported that it had about $127 billion in mortgage loans that were at least 120 days delinquent. However, the company also plans to include the loans that have become 120 days or more delinquent since the beginning of 2010 as well. Officials at Fannie Mae say that it is cheaper to hold the loans than to keep making payments on defaulted loans.

Fannie Mae also said it would give priority to mortgage borrowers who have modified loans and two-year delinquencies. The lender will also give special consideration to the loans with the highest unpaid principal balances and those with the highest pass-through rates. Researchers at Barclay Capital said that the list of priorities for Fannie Mae shows that they are trying to clean out the higher-priced loans before moving on to the lower-priced ones. The research also states that Fannie Mae will need to come up with about $100 billion over the next three months just to carry out its buyout plan.

Freddie Mac also announced recently that it would be buying many delinquent mortgages backed by its company. Freddie has about $70 billion in delinquent MBS loans as of the end of 2009. However, Freddie Mac plans to have its purchases completed by the end of March.

The delinquency rates for Fannie Mae have outpaced the delinquencies of Freddie Mac loans in recent months. That’s why in September of 2008, Fannie Mae was placed under conservatorship. This most recent announcement comes just weeks after the two giants – Freddie Mac and Fannie Mae – announced that they could join forces and purchase about $200 billion of mortgage loans which are delinquent.

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