Credit Suisse: Fannie, Freddie Action Means Large Scale Buyouts of Loans in Their Securities (FNM; FRE)

Bloomberg is on the job with some of the implications of the Christmas Eve Treasury move:

The U.S. government’s expanded capital backstops and portfolio limits for Fannie Mae and Freddie Mac increase “the prospect of large-scale” purchases by the companies of delinquent mortgages out of the securities they guarantee, according to Credit Suisse Group analysts.

The Treasury Department announced Dec. 24 that the two mortgage-finance companies, which were seized by the U.S. almost 16 months ago, could tap an unlimited amount of capital for three years, up from as much as $200 billion each. It reworked caps on Fannie Mae and Freddie Mac’s mortgage-asset portfolios to require the holdings to fall to $810 billion by Dec. 31, 2010, rather than about $690 billion.

“This announcement increases the prospect of large-scale voluntary buyouts by removing the portfolio cap hurdle and helping funding by potentially increasing debt-investor confidence,” Mahesh Swaminathan and Qumber Hassan, the Credit Suisse debt analysts in New York, wrote in a report yesterday.

Analysts including those at Credit Suisse and JPMorgan Chase & Co. have been predicting a spike in the companies’ buyouts of loans from their securities early next year. Aside from more purchases being required by the debt’s contracts as additional loans get modified under the Home Affordable program or fall more than two years past due, accounting-rule changes will force all loans in their securities onto their balance sheets, limiting the financial impact of actually buying them.

The changes announced by the Treasury last week are a “positive” for yield premiums on Fannie Mae and Freddie Mac mortgage bonds by eliminating “the overhang of potential” selling by the companies, the Credit Suisse analysts wrote. The portfolio- limit adjustment will give them “enough headroom” to absorb the approximately $220 billion “pipeline” of delinquent loans in their securities without having to sell other bonds, they wrote....MORE