The Federal Housing Finance Agency’s (FHFA) latest report on
the sale of non-performing loans (NPLs) by Fannie Mae and Freddie Mac (the GSEs)
indicates the agency’s strategy of selling delinquent loan pools to achieve
better borrower outcomes has been effective.
The GSEs sell NPLs – loans that are one or more years into delinquency
– to reduce delinquent loans held in their inventories and shift the associated
credit risk to the private sector. These sales are intended to create more favorable
borrower outcomes and be more beneficial for local communities compared to retaining
the NPLs in the GSEs’ portfolios. NPL sales also help mitigate losses to the GSEs
and to the taxpayers.
The enterprises sold 163,297 NPLs with a total unpaid principal
balance (UPB) of $30 billion from the program’s inception in 2014 through June 30
of last year.
“NPLs on homes occupied by the borrower had the highest rate
of foreclosure avoidance outcomes (45.6 percent foreclosure avoided versus 17.9
percent for vacant properties),” the report states. “NPLs on vacant homes had a
much higher rate of foreclosure (76.4 percent foreclosure versus 28 percent for
borrower-occupied properties). Foreclosures on vacant homes typically improve neighborhood
stability and reduce blight as the homes are sold or rented to new occupants. NPL
resolution has increased since the beginning of the program for all occupancy statuses.”
The FHFA noted the average delinquency range for NPL loan pools
sold was from 1.1 years to 6.2 years. New Jersey, New York and Florida accounted
for about 40 percent of all NPLs sold.
Among the 112,730 loans sold by Fannie Mae, the aggregate UPB
was $20.3 billion, the average delinquency was 2.8 years and the average loan-to-value
(LTV) ratio was 81 percent. Freddie Mac has sold 50,567 loans with an aggregate
UPB of $9.7 billion, an average delinquency of 2.7 years, and an average LTV of
90 percent.
The FHFA included the following borrower outcome highlights
in its report as well:
·
“The borrower outcomes provided in this report are
as of June 30, 2023, based on the 160,576. NPLs that settled by Dec. 31, 2022. As
of June 30, 2023, 79 percent of these NPLs had been resolved. Compared to a benchmark
of similarly delinquent enterprise NPLs that were not sold at the start of 2014,
foreclosures avoided for sold NPLs were higher than the benchmark. FHFA analyzed
a more recent benchmark: of similarly delinquent.
·
“Enterprise NPLs that were not sold as of the start
of 2016. Foreclosures avoided for NPLs sold in 2016 or later were higher than this
benchmark.
·
“NPLs on vacant homes had a much higher rate of foreclosure,
more than double the foreclosure rate for borrower‐occupied properties (76.4 percent
foreclosure versus 28 percent for borrower‐occupied properties). Foreclosures on
vacant homes typically improve neighborhood stability and reduce blight as the homes
are sold or rented to new occupants.
·
“Nine percent of permanent modifications of NPLs
incorporated arrearage and/or principal forgiveness. The average forgiveness earned
for these loans to date was $63,721 (with the potential for borrowers to earn an
average earn an average forgiveness of $75,590).”