Basic, if the individuals standard, Freddie pays the entire value of the fresh mortgages underpinning the newest securities, because it secures the money
Anywhere between late 2010 and you can early 2011, Freddie Mac’s commands off inverse floater ties rose dramatically. Freddie purchased inverse floater servings of 30 selling this season and you can 2011, that have twenty-six ordered ranging from . One to measures up with seven for everyone away from 2009 and you may five within the 2008.
Also, it is a giant problem in the event the people including the Silversteins refinance its mortgages. This is because a beneficial refi try another type of mortgage; the newest debtor pays the first loan early, ending the eye repayments. Due to the fact security Freddie owns is actually backed generally of the the individuals notice payments, Freddie manages to lose.
That inverse floaters weight Freddie with entirely new risks. With this purchases, Freddie has taken financial-supported bonds which might be an easy task to promote and you will exchanged all of them to own of these which might be more challenging and maybe more expensive to offload, according to home loan sector professionals.
The brand new inverse floaters carry yet another chance. Freddie will get reduced the essential difference between the newest highest mortgages cost, for instance the Silversteins is actually paying, and a switch around the globe rate of interest one nowadays is quite reduced. If that rates goes up, Freddie’s profits often slip.
After 2011, Freddie’s collection of mortgages was just more than $663 mil, down over six % on earlier in the day year. But you to definitely $43 million shed throughout the collection overstates the risk protection, since the business retained exposure from inverse floaters. The business is actually really beneath the limit of $729 million necessary for the regulators takeover agreement.
