Freddie Finds Buyers for Risk-Sharing Debt as Fannie Seeks More

With mortgage giant Freddie Mac finding increased demand this week in the nascent market for its risk-sharing securities, competitor Fannie Mae said it was taking steps to draw more buyers for its own notes.

Freddie Mac on Tuesday sold more of the debt, which it uses to shift some of its losses to investors, than first planned at yields that were lower than initially marketed, according to a person with knowledge of the sale. Shortly before that offering sold, Fannie Mae said in a statement that it has listed its similar securities on the Irish Stock Exchange, where debt listings are permitted, a move already undertaken by Freddie Mac.

The government-backed companies, which began selling the notes in 2013, have been seeking to expand the market to reduce the risk of mortgage defaults borne by taxpayers and to help make prices of the debt less volatile. The Treasury Department’s top housing official this month said that the firms should move faster with their risk-sharing programs and sales of soured mortgages.

“The market has shown significant appetite for the risk, so better to get it out of the taxpayers’ hands more quickly,” Jim Parrott, a senior fellow at the Urban Institute and former senior National Economic Council adviser, wrote Monday in a paper on the speech by Treasury official Michael Stegman.

Freddie Mac increased the size of its offering to $860 million from $725 million, said the person, who asked to not be named without authorization to speak publicly.

The safest portion carries yields that float 1.05 percentage point above a benchmark rate, down from a range of 1.25 percentage point to 1.35 percentage point suggested earlier, the person said. For the riskiest slice, spreads fell to 10.75 percentage points from as high as 11.25 percentage points.

Along with listing its securities on the Irish exchange, Fannie Mae said it was taking steps to ensure the offerings comply with risk-retention rules affecting European investors. The moves were “part of our continuing effort to expand the investor base in the program,” Laurel Davis, a vice president for credit-risk transfer, said in the statement.

Sales of the risk-sharing securities by the two companies total about $15.9 billion, including about $3.3 billion this year, according to data compiled by Bloomberg.