Fannie Mae’s Portfolio Contracts Again. Don’t Expect That to Continue in the Months Ahead

Fannie Mae's mortgage investment portfolio shrank for thernsecond straight month in February while the most recent available datashowedrndelinquencies in loans held by the nation's largest provider of homemortgages arerncontinuing to rise at an almost inexorable rate.  

Fanniern Mae's Monthly Summary for February reports that therngross mortgage portfolio declined to a value of $725.9 billion comparedto $735.21rnbillion in January, a decrease of 14.2 percent. rnOne year earlier the portfolio was sized at $784.72 billion, so despiternmany fluctuations over the year, February's figures represent anannualizedrnone-year decrease of 31.2 percent.

The total book of business ofthe firm was $3.230 trillionrnat the end of February compared to $3.227 in January, a compound growthof 1.0rnpercent.

In January, the last month for which figures areavailable, 5.52rnpercent of the loans Fannie Mae guarantees were delinquent, an increaseof 0.14rnpercent from December.  In January 2009rnthe delinquency rate was 2.77 percent. rnIn January the non-credit enhanced portion of the portfolio had a raternof 3.83 percent compared to 3.67 percent in December and 1.63 percent inrnJanuary 2009.  The delinquencies in therncredit enhanced portion stood at 13.68 percent compared to 13.51 percentrn thernmonth before and 7.24 percent a year earlier. rnMultifamily delinquencies increased from 0.63 percent in December torn0.69 percent in January.  One yearrnearlier it was 0.27 percent.

While this is the second month in a row that Fannie Mae's portfolio shrank, this will not last much longer.

On Februrary 10, Fanniern Mae and Freddiern Mac announced they would buyout “substantially all” loans that weNrern four or more consecutive monthly payments behind. This implies theoverall number and percentage of  delinquent loans Fannie Mae andFreddie Mac ownwill increase sharply in the months to come. While most of Freddie Mac'srn purchases took place in March, Fannie Mae is spreading out theredelinquency buyouts over the next four months with the biggest portionof purchases expected to occur in April and May. 

THISrn CHART gives an idea of the breakdown of delinquent loans that aresoon to be bought by Fannie Mae.

For anyone wondering how big a role Fannie and Freddie will play in supporting originator selling of new new loan production. This comment from FHFA Director provides clear guidance:

“FHFA remains committed to the principle of reducing the retained portfolios as set forth in the PSPAs. Consistent with the goals of conservatorship and in accord with the recent Treasury announcement, FHFA does not expect the Enterprises to be substantial buyers or sellers of mortgages, with an important exception.

As I stated in December, the increased flexibility provided with the retained portfolio amendment may be important for maintaining the Enterprises' capacity to purchase delinquent mortgages out of guaranteed mortgage-backed security pools. Given the size of the Enterprises' current outstanding retained portfolios, and the potential volume of delinquent mortgages to be purchased out of guaranteed mortgage-backed security pools, it is my expectation that any net additions to their retained mortgage portfolios would be related to this activity.”

Plain and Simple: MBS demand must come from private investors. READ MORE

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