Freddie Mac said Tuesday that it would provide liquidity to the mortgage market by purchasing more alternative-A loans on a forward basis.
The move came as future commitments for such purchases had virtually dried up.
Charles Coulter, Freddie Mac's vice president of strategy and offerings management, said in an interview that some large Alt-A customers had asked the government-sponsored entity for the commitments to get "greater certainty around their ability to execute."
"Obviously, there's a lot of turmoil in the market, and given the tightening and relative value of the agency guarantee, we wanted to support our customers in the market," he said.
Paul Mullings, a senior vice president for single-family sourcing at Freddie Mac, said in a press release Tuesday that providing a 90-day forward commitment capability to experienced lenders "will accommodate a majority of the fixed- and adjustable-rate Alt-A product, including many of the reduced-documentation mortgages" that the agency buys on a bulk basis.
Liquidity has all but disappeared for alternative-A mortgages in the past two weeks, forcing several companies to stop offering them.
Impac Mortgage Holdings Inc., an Irvine, Calif., lender whose core residential operations are almost exclusively alt-A mortgages, stopped funding loans last week because of volatility in the secondary market, saying it would only fund loans eligible for sale to government-sponsored enterprises.
Sales of nonagency mortgage bonds have come to a standstill because mortgage lenders have cut back on making loans that lack an implied government guarantee. In recent weeks, Wells Fargo & Co., National City Corp., and IndyMac Bancorp Inc. all cut back on loans that cannot be guaranteed by Fannie Mae and Freddie Mac.
Jim Vogel, an executive vice president of fixed-income research at First Horizon National Corp.'s FTN Financial Capital Markets, said Freddie's move should help originators. "Anything that gives mortgage bankers the ability to move ahead and commit even a portion of their pipelines is good for the market," he said.
Mr. Coulter said Freddie Mac has defined "a prudent credit box." If lenders are willing to originate within its "well-defined credit parameters," he said, it will expand its forward commitments to 90 days, essentially locking in a negotiated price for products that will meet tighter guidelines than what the agency is buying through its structured transactions group.
Ron Kiuttu, a vice president of secondary marketing at Provident Savings Bank, a unit of Provident Financial Holdings Inc., in Riverside, Calif., said the move appears to be "opening up to smaller mortgage bankers who have experience in alt-A lending."
Freddie also is monitoring higher-risk products such as no-documentation and high loan-to-value loans, he said, and is "keeping a close eye" on whether it will keep buying such products.
Several banking and housing trade groups have urged the top regulator for Fannie Mae and Freddie Mac to reverse a decision made last week restricting the GSEs from expanding their mortgage portfolios beyond current limits.
James Lockhart, the director of the Office of Federal Housing Enterprise Oversight, said Friday that Fannie and Freddie would not be allowed to exceed the limits on their mortgage portfolios. The GSEs, combined, hold $1.4 trillion of mortgages, and their market share has grown dramatically in the past year.
The newsletter Inside MBS & ABS has reported that the agency share of residential mortgage bond issuance rebounded to 49% in the first quarter and 54% in the second quarter from a low of 44% last year.
