Saturday, September 19, 2009

Freddie seems materially different from Fannie right now.

Both companies (or perhaps I should say, wards of government) put out financial disclosures each month called monthly volume summaries. Freddie's most recent summary shows a serious delinquency rate of 2.95 percent for single family borrowers and 0.11 (!) percent for multifamily. Fannie, on the other hand, has a delinquency rate of 3.94 percent for single family borrowers and 0.51 for multifamily. Fannie's credit enhanced book (i.e., book of mortgages that had loan to value ratios of less than 20 percent at origination) is performing very poorly.

The difference in single family performance may reflect differences in the mix of loan originators from whom the two companies purchase mortgages. But the difference in multifamily performance puzzles me.

Multifamily performance is still good well because apartments continue to produce reasonably good cash flow. But when multifamily loans come due, rising cap rates and falling rents will make them difficult to refinance, so we will start seeing defaults in this sector increase in the next few years.