July 19, 2011 (Chris Moore)
Freddie Mac continues to maintain a serious delinquency rate of less than half that of the mortgage lending industry, but could still lose its top credit rating if lawmakers fail to raise the debt ceiling to avoid default.
According to data released by Freddie Mac, the delinquency rate for loans in their portfolio that are 90+ days past due or in foreclosure dropped to 3.60 percent in the first quarter of 2011, less than half the industry’s average delinquency rate of 8.10 percent.
Freddie attributes their low delinquency rate to the fact that they have primarily operated in the prime, conventional and conforming market, buying mostly 30 year and 15 year fixed rate mortgages. They also cite their long-standing policy of addressing delinquencies early on by giving servicers broad authority to pursue every reasonable workout option for struggling borrowers.
However, that may not be enough to save their top rated credit rating if the government doesn’t come up with a plan to avoid defaulting on its debt.
According to the credit rating agency Standard and Poor (S&P), since Freddie Mac, and its sister Government Sponsored Enterprise (GSE) Fannie Mae, are reliant on the U.S. government for funding, the two GSE’s could potentially default on their debts if the government’s borrowing limit is not raised.
Analysts say if the government were to default on its debt, Treasury bond yields would probably increase dramatically which would lead higher mortgage interest rates, a scenario that would likely have a devastating effect on the fragile housing market.
Fannie and Freddie own or guarantee about half of all mortgages in the United States, with approximately 31 million home loans worth more than $5 trillion between the two. After the Bush administration seized control of the two GSE’s in 2008 to save them from financial meltdown, taxpayers have spent nearly $150 billion to bail them out, with the total expected cost to be about $260 billion.
Tags: Freddie Mac, delinquency rate, credit rating, debt ceiling, default, foreclosure, mortgage interest rate, fixed rate mortgages, GSE, Fannie Mae