Freddie Mac plans to begin selling home-loan bonds without U.S. backing from its holdings as rising property prices help boost their value.
The government-controlled mortgage financier that’s returned to profitability after requiring a taxpayer-funded rescue during the credit crisis is offering $1 billion of non-agency securities from its $121.5 billion portfolio this month, said Tom Fitzgerald, a spokesman. McLean, Virginia-based Freddie Mac expects to sell another $1 billion in June and may offer as much as $5 billion in all this year, he said. Any sales after next month would depend on further appreciation in the securities.
“We’re planning the sales to take advantage of the strong improvement in bond prices” and to meet a regulatory goal of reducing holdings of illiquid assets, Fitzgerald said yesterday in a telephone interview.
Losses on the securities contributed to the government’s decision to seize Freddie Mac and rival Fannie Mae in September 2008 in a bid to stabilize financial markets as foreclosures soared. In March, executives at the companies were given a goal of selling off at least 5 percent of illiquid holdings this year as the Federal Housing Finance Agency seeks to make the firms smaller. Those assets are separate from Freddie Mac’s guarantees on $1.6 trillion of debt that’s held mainly by others.
Non-agency securities returned almost 7 percent in the first four months of 2013 as the housing recovery strengthened and investors sought higher-returning debt with the Federal Reserve suppressing bond yields by buying government-backed notes to stimulate the economy, according to Amherst Securities Group LP data. The debt gained about 21 percent last year, with some subprime-tied notes rising more than 40 percent.
Along with the $121.5 billion of non-agency securities, illiquid assets on Freddie Mac’s balance sheet in March included $212.5 billion of loans, much of which was delinquent or modified debt, according to data released monthly by the company. It also held about $200 billion of agency securities guaranteed by itself, Fannie Mae or U.S.-owned Ginnie Mae.
Freddie Mac reported $4.6 billion in first-quarter net income on May 8, the second-biggest quarterly profit in its history. The company said it would pay $7 billion to the Treasury by June 30, bringing its dividends to the government to $36 billion, compared with the $72 billion in aid it drew to remain solvent.
Fannie Mae, which is based in Washington, said yesterday that it posted $8.1 billion in net income last quarter, and would pay $59.4 billion to the Treasury after reversing writedowns on tax credits. Neither firm is allowed to pay down the amounts they owe to the government under the terms of their bailouts.