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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (45105)	1/24/2006 1:51:47 PM
From: shades	Respond to of 116555

DJ UPDATE: Freddie Mac Goes On Buying Spree In December (Adds comments from Freddie spokesman and additional analysts.) By Allison Bisbey Colter Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Freddie Mac (FRE) went on another buying spree in December, adding to its holdings of fixed-rate mortgage bonds as valuations of these securities continued to weaken. The housing agency's holdings of mortgage-related securities rose by $17.26 billion during the month to $710 billion, for an annualized rate of growth of 29.9%. That came on the heels of a November that was nearly as strong, with annualized growth of 25.8%. Jim Vogel, executive vice president at FTN Financial Capital Markets, said Freddie's mortgage purchases over the November/December period represent the most impressive growth spurt since the third quarter of 2003. "It gave them a more than respectable year in a tough environment," he says in an e-mail. For 2005 as a whole, the housing agency's holdings of mortgage bonds rose 8.7%. Freddie and its rival housing agency Fannie Mae (FNM) are chartered by Congress to buy mortgages from lenders, freeing them to make more loans. They repackage some for resale and keep others on their books. For much of 2005, it wasn't profitable for either company to hold on to fixed-rate mortgage, although they both added significantly to their holdings of bonds backed by adjustable-rate and hybrid loans. Freddie spokesman Michael Cosgrove said that, beginning in October, the spread between the interest Freddie earns on fixed-rate mortgage bonds and the interest it pays on debt issued to fund its purchases "broadened the range of purchase opportunities in the fourth quarter." Freddie acquired $36.19 billion of mortgage-related securities in December, up from $32.57 billion in November. Its sales of these securities also rose, but from a low level, to $3.18 billion from $1.7 billion. Meanwhile, the number of securities in the portfolio that matured or were paid off early remained relatively high at $15.75 billion in December compared with $16.29 billion in November. As in November, the bulk of Freddie's additions to its mortgage portfolio in December were bonds backed by fixed-rate paper. The housing agency's holdings of its own participation certificates rose by $11.66 billion to $361.32 billion while its holdings of non-agency securities, which are backed primarily by adjustable-rate loans, rose by just $5.63 billion to $242.59 billion. The company's holdings of securities backed by other housing agencies slipped by $460 million to $44.63 billion and whole loans edged up by $430 million to $61.48 billion. Mortgage purchase agreements, an indication of future growth, fell to $19 billion from $26.94 billion. Mortgage purchase agreements are contracts to purchase mortgages that have yet to close. December's increase puts Freddie's holdings that much closer to those of Fannie, which has shed some $200 billion of mortgage assets this year as part of an effort to shore up its finances. At the end of November, Fannie's mortgage holdings totaled $715.5 billion. It has yet to report on its portfolio activity for December. But Vogel said it's unlikely Freddie's holdings outstripped Fannie's last month, since Fannie had a large number of mortgage purchase agreements outstanding at the end of November. And analysts are skeptical that Freddie can maintain the recent pace of mortgage purchases this year given the rise in mortgage bond valuations in recent weeks. Art Frank, director of MBS research at Nomura Securities, said he would not be surprised if the pace of growth slowed a bit early this year. "In November and early December, spreads were pretty attractive, but since then we've tightened a bunch," he said. The strategist said yield spreads on current coupons are now 8 basis points narrower than they were four weeks ago, and 14 basis points narrower than they were six weeks ago. And Alec Crawford, MBS strategist at RBS Greenwich Capital, noted in a research note that the $19 billion of purchase commitments Freddie had outstanding at the end of December barely cover the amount of securities maturing or being paid off early each month. -By Allison Bisbey Colter, Dow Jones Newswires; 201-938-5298; allison.bisbey-colter@dowjones.com