Fannie Mae Said to Plan $1 Billion Sale of Home Mortgage Bonds

Fannie Mae, the mortgage financier controlled by the U.S. government, plans to sell about $1 billion of home-loan bonds without U.S. backing from its holdings.

The company is offering the non-agency securities from its portfolio in an auction on July 11, according to three people with knowledge of the matter, who asked not to be identified because the sale is private. The Washington-based firm owned about $36 billion of the debt as of Dec. 31, half the amount of its smaller counterpart Freddie Mac, which conducted a similar auction in May as the firms seek to shrink their harder-to-trade assets.

Losses on the securities contributed to the government’s decision to seize the companies in 2008 in a bid to stabilize financial markets, and the debt is now declining again after a record rally. In March, the Federal Housing Finance Agency gave Fannie Mae and Freddie Mac executives a goal of selling off at least 5 percent of their illiquid holdings this year. Those assets are separate from Fannie Mae’s guarantees on $2.8 trillion of debt that’s held mainly by others.

“We are working with FHFA to meet the goals of the conservatorship scorecard for 2013,” Andrew Wilson, a spokesman for Fannie Mae, said in a telephone interview.

The notes the company is selling are also different from potential new securities from the companies meant to share their credit risks with private investors, a separate initiative also ordered by the FHFA that’s meant to reduce their roles in the new lending. Freddie Mac has started discussing its version with investors, a person with knowledge of the plans said last month.

Illiquid Assets

Demand for non-agency securities has been slumping as concern that the Federal Reserve will scale back its bond buying roils credit markets. Senior subprime-mortgage securities have lost almost 5 percent since May to trim returns this year to 6.5 percent, according to Barclays Plc index data.

Along with the $59.5 billion of non-agency home-loan securities and apartment-mortgage bonds, illiquid assets on Fannie Mae (FNMA)’s balance sheet in May included $345.3 billion of loans, much of which was delinquent or modified debt, according to data released monthly by the company. Its portfolio, including agency securities guaranteed by itself, Freddie Mac or U.S.-owned Ginnie Mae, totaled $574.9 billion.

In May, the company auctioned off about $2 billion of its commercial-mortgage bond holdings, the first widely distributed offering its kind, according to Deutsche Bank AG analysts.

Fannie Mae posted $8.1 billion in net income in the first quarter, and said it would pay $59.4 billion to the Treasury Department after reversing writedowns on tax credits. Neither Fannie Mae nor Freddie Mac is allowed to pay down the amounts they owe to the government under the terms of their bailouts.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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