Fannie Mae Swaps Loans Pegged to Libor

NEW YORK -- The Federal National Mortgage Association converted into securities some $300 million of home loans pegged to the London interbank offered rate.

The action, announced at a conference here on Tuesday, marked Fannie Mae's debut in the securitization of such loans.

Adjustable-rate mortgages tied to Libor, though still rare, are expected to appeal to overseas investors. Strong demand from investors could allow originators to offer the loans to consumers at highly competitive interest rates.

In one transaction disclosed Tuesday, Western Federal Savings, Marina del Rey, Calif., exchanged $100 million in Libor mortgages for Fannie Mae securities backed by the loans.

The agency carried out a similar swap with $200 million in loans from RAC Mortgage Funding, Richmond, Va. Western Fed and RAC are expected to eventually sell the securities to investors.

Western Federal, owned by an investor group led by former Treasury secretary William Simon, has been originating Libor mortgages for nearly two years.

Last July, Western Federal securitized some of its Libor loans through Fannie Mae's rival, the Federal Home Loan Mortgage Corp. The thrift also has sold Libor loans to Wall Street firms, which then issued securities.

Citicorp began marketing a Libor mortgage late last year. The banking giant plans to introduce the loan in its home market of New York by mid-summer, a spokesman said.

So far, Citicorp has been holding the loans. But it expects to securitize them at some point, probably without help from Fannie Mae or Freddie Mac. Many of the Citicorp loans are "jumbo" mortgages, which are too large for the agencies.

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