Magazine article American Banker

Freddie: Decline No Cause for Alarm

Magazine article American Banker

Freddie: Decline No Cause for Alarm

Article excerpt

Freddie Mac officials say the first-ever shrinking in its investment portfolio is a sign of sound business practices, not of any problems.

The government-sponsored enterprise announced Tuesday that its retained portfolio fell to $521.6 billion in April, a drop of 10.3% in annualized growth from March. The portfolio consists of mortgage loans that the company buys and then holds.

Freddie's purchase commitments also fell, to $4 billion, down 63% from March. The company attributed this to tight mortgage-to-debt spreads in April, meaning that it felt the loans were too expensive. Strong demand for mortgage securities from other investors also took the pressure off Freddie to step in and buy at its usual pace.

Freddie's investment strategy is guided by market conditions -- it does not have a fixed monthly investment, company spokeswoman Gisela Vallandigham said. Retained portfolio growth can vary considerably month to month, she said, and it has done just that in the first four months of this year.

"We will continue to grow our retained portfolio only when returns meet our thresholds and when we can prudently manage risk," Ms. Vallandigham said. "It's important to note that we grow our retained portfolio opportunistically, buying in size when spreads are wider and when purchases meet our established thresholds."

In the near term, Freddie expects "slow to negative" retained portfolio growth, but for all of 2002 gains should be in the "mid-teens," she said. …

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