Debt protection costs up for Fannie Mae, Freddie Mac
22 Nov 2007
The cost to insure the debt of home loan mortgage providers Fannie Mae and Freddie Mac rose by 9.5 to 11 per cent on Monday amid concerns of losses from sub-prime mortgages. Fannie Mae''s swaps rose almost 11 per cent to 55.5 basis points or $55,500 per year for five years to insure $10 million in debt. Freddie Mac''s swaps rose 9.5 per cent to 54.82 basis points. The swaps of both agencies traded around 27 basis points at the end of October.
Fannie Mae''s default swaps have weakened amid concerns over loss accounting at the largest provider of funding for US residential mortgages. This month, Fannie Mae attributed $670 million in credit loss reserves to charge-offs taken as it purchased troubled loans out of mortgage bond trusts.
Freddie Mac, meanwhile, weakened after a Credit Suisse research report said the company may report a loss of between $1 billion to $5 billion on its subprime ''AAA'' portfolio. Swaps on both agencies as of Friday were trading as though rated ''Baa1'', the third lowest investment grade and seven notches below their actual ''Aaa'' ratings.
