Fannie Mae to Purchase Delinquent Loans from MBS Trusts

Following in the ""steps of its sibling company"":http://dsnews.comarticles/freddie-mac-to-buy-back-more-than-71-billion-in-delinquent-loans-2010-02-10, Freddie Mac, ""Fannie Mae"":http://www.fanniemae.com has announced that it too will be buying back bad loans from mortgage-backed securities (MBS) investors in bulk.

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The GSE said it will begin ""significantly"" picking up the pace of its purchases of single-family loans that are at least 120 days past due from MBS trusts, beginning in March, with the numbers reflected in a report to be released in early April.

Fannie did not disclose an exact dollar amount of the repurchases, but did say that ""as of December 31, 2009"":http://www.fanniemae.com/newsreleases/2010/4938.jhtml?p=Media&s=News%20Releases, the total of all loans in such trusts that were four or more months delinquent was approximately $127 billion.

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""We expect to purchase a significant portion of the current delinquent population within a few month period subject to market, servicer capacity, and other constraints,"" Fannie Mae said in a statement.

According to the GSE, the delinquent loan purchases will help the company preserve capital by reducing net funding costs, and in turn will lessen the amount of taxpayer funding drawn from the U.S. Treasury.

As was the case with Freddie Mac, on January 1, 2010, Fannie Mae adopted new industry-wide accounting standards â€" FAS 166 and FAS 167. These rules require issuers of securitized mortgages to account for the bundled assets on their own books, rather than passing them off completely to investors.

Because of this accounting change, Fannie Mae decided that it is cheaper to buy the seriously past due loans back and hold them in its own portfolio, rather than continue advancing delinquent interest payments to security holders.

Fannie Mae assured the industry that the loan purchases will not affect the company's foreclosure prevention activities under the administration's Making Home Affordable program.