Magazine article American Banker

Freddie Mac Becoming Remic Packager, but It Plans to Be Small Player

Magazine article American Banker

Freddie Mac Becoming Remic Packager, but It Plans to Be Small Player

Article excerpt

Freddie Mac has kicked off - through a $350 million deal it expects to place with investors by Wednesday - a program under which it would bypass Wall Street and package its own mortgage securities.

The move is the first by Freddie Mac- working through its trading unit- to take on the key tasks of structuring, pricing, and distributing sophisticated investments known as real estate mortgage investment conduits, or Remics. The government-sponsored enterprise hopes to boost fee income and provide new options to lenders and investors.

Investment banks have handled these deals and reaped the fee income they generate since the mortgage securities market's inception in the mid-1980s.

"We've looked at the marketplace, the lay of the land, and concluded that this is a good business" to be in, said Charles Foster, acting director of the securities sales and trading group, the Freddie Mac unit handling the deal.

"This may be an advantageous way to distribute collateral we own," Mr. Foster said. He also said Freddie Mac's efforts as a Remic underwriter would be modest, although he declined to say what kind of volume the company might do.

A spokesman for Freddie Mac declined to estimate possible earnings from the new activity, but did say that fee income would be nowhere near the hundreds of millions of dollars it earns through its large holding of mortgage loans and securities.

Late last year, a consultant working with Freddie Mac estimated that underwriters get $450,000 for every $1 billion of loans they package into Remics, making the business potentially lucrative for a company with the necessary systems and staff.

This year, underwriters are on track to top the $50 billion of Remics that were generated in 1996. Indeed, demand for the products has snapped back sharply after unexpected interest rate fluctuations burned investors in 1994 and 1995. …

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