Fannie and Freddie bond dump could shake market

by MPA17 Sep 2013

Fannie Mae and Freddie Mac are preparing to auction as much as $17bn worth of mortgage bonds acquired before the housing collapse, according to a Bloomberg report. Investors worry the bond auction may drag down prices even as the Federal Reserve considers tapering its bond-buying program.

Fannie and Freddie have already sold about $22bn in residential and commercial securities over the past four months, according to Bloomberg. The previous bond sales haven’t rocked the market because those “bonds have been higher quality in nature,” Brean Capital’s Scott Buchta told Bloomberg. There will be a bigger impact, however, if Fannie and Freddie start dumping riskier debt, Buchta said.

Fannie and Freddie have been selling the securities to reduce their stake as the government seeks to overhaul the mortgage system and place more of the risk with private investors, Bloomberg reported. So far Fannie and Freddie have mostly sold securities linked to apartment buildings, which generally command the highest prices among the securities they have been tasked with shrinking. 

They’ve also already sold $7.5bn in mortgage-backed securities, according to Bloomberg. Many of those securities, issued prior to the lending spree of 2006-2007, are considered relatively safe. Mortgage securities without government backing lost an average of 3.7% in June and July and gained 0.55% in August to bring total gains this year to 5.7%, according to Bloomberg.


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