Magazine article American Banker

Fannie, Freddie Go to Town in a Market Ripe for Them

Magazine article American Banker

Fannie, Freddie Go to Town in a Market Ripe for Them

Article excerpt


Fannie Mae and Freddie Mac, strong buyers of mortgages throughout the year, have bolstered their mortgage portfolios in response to a tremendous widening in spreads this fall.

Together, Fannie and Freddie's purchases grew almost 32% from the August total, to $29.9 billion in September. Commitments to buy mortgages for their portfolios also jumped, to $38 billion-breaking January's record by almost $9 billion-according to Inna Koren, first vice president at Prudential Securities.

Fannie and Freddie have two business lines; they are both investors in and insurers-or guarantors-of loans for sale in the secondary market. As investors, they buy mortgages for their portfolios.

The investor side of the business has blossomed this fall because the spread between agency paper and mortgages has "widened dramatically in the last month or so," Ms. Koren said. This has enabled Fannie and Freddie to buy mortgages and mortgage-backed securities at more attractive rates.

In the last six weeks, spreads on new mortgage products have "exploded," creating the right conditions for Fannie and Freddie, said Jonathan E. Gray, principal at Sanford C. Bernstein & Co.

"Right now they have the wind at their backs," he said. "Not only do they have tons of volume, but the spreads on that volume are off the page." Fannie and Freddie's growth will account for 35% to 40% of the entire mortgage market's net growth, he added.

The bulk of the increase in commitments was reported by Freddie Mac. …

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