Freddie Mac and the mortgage market
To complement Pershing Square’s presentation on the state of the mortgage market, Freddie Mac includes in its quarterly results a review of the housing market that is always very interesting. It starts on page 12.
Regarding Freddie Mac the situation seems to be stabilizing, some would say improving, with almost no draw last quarter (only $100 million in Q3). Very good considering the 10% interest of the government senior preferreds. Not only that, Freddie Mac’s single family delinquencies peaked in February 2010 at a 4.2% and then improved seven months in a row.
The FHFA also released projections that show a future where Freddie Mac might be profitable. Most positive if compared to Fannie Mae for example. To add insult to humiliation, they also reduced the estimated total cost of the GSEs bailout – between $221 billion and $363 billion is the latest tally - slowly recognizing that it was a completely made up number at the beginning while still raising doubts on this most recent count.
At the same time, the Obama administration is trying to persuade the GSEs, through the FHFA, to participate in a program that allows banks and other creditors to write down mortgages and hand off the reduced loans to the FHA. The objective is to find a way to deal with the loans that are severely underwater: almost 1 of every 10 mortgages is more than 25% underwater. This looks like part of the arm twisting of the banks to also participate. The issue is that the GSEs would relinquish their options of collecting from mortgage insurers or putting back loans to banks when a loan defaults. These news might explain the strong performance of the mortgage insurers today.
Long FRE preferreds