Fannie Mae, Freddie Mac buying bad loans

by Associated Press

Published: February 11,2010

Tags: housing, mortgage industry, real estate, recession

WASHINGTON — U.S. government-controlled mortgage finance companies Fannie Mae and Freddie Mac said yesterday they will buy back troubled loans contained in securities they have already sold to investors.

The two companies are repurchasing mortgage loans for which borrowers have missed at least four months of payments. At the end of last year, Fannie had about $127 billion of such loans, while Freddie Mac had about $70 billion.

The two companies guarantee the mortgage securities they sell to investors. Buying the delinquent loans back would cost less than making those guarantee payments, both companies said.

Fannie Mae, based in Washington, and its McLean, Virginia, rival Freddie Mac have been run under tight government oversight since they almost collapsed in September 2008. They have required $111 billion in federal aid to stay afloat.

Late last year the Obama administration pledged to cover unlimited losses through 2012 for both companies, lifting an earlier cap of $400 billion. That gave Fannie and Freddie more leeway to buy back delinquent loans.

“It is my expectation that any net additions to their retained mortgage portfolios would be related to this activity,” the companies’ chief regulator, Edward DeMarco, said in a letter sent to Congress last week.

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