With the Announcement of Fannie Mae’s First Bulk NPL Offering, More Sales Could Be Coming

Fannie Mae just announced last week that it is in the process of marketing its first-ever bulk sale of non-performing loans. Bids are due for this bundle of NPLs, worth about $786 million, on May 6 and the sale is expected to close in mid- to late June – but there could be more similar sales coming later.

"We plan to build these sales into a programmatic offering, and look forward to working with a diverse range of potential buyers over time, including smaller investors, nonprofit organizations and minority- and women-owned businesses," Joy Cianci, Fannie Mae’s SVP for Credit Portfolio Management, said last week.

Fannie Mae's fellow GSE, Freddie Mac, has already conducted three bulk NPL sales in the last eight months totaling approximately $1.97 billion in UPB. The last such sale by Freddie Mac, completed on March 25, was its largest bulk NPL sale ever – it included nearly 5,400 loans totaling $985 million in UPB.

While the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac's conservator, has instructed the two GSEs to clear out non-performing and deeply delinquent single-family residential mortgage loans from their portfolios, the FHFA has made it clear that these bulk NPL sales are not simply a house-cleaning; FHFA wants to make sure the borrowers in all of the deeply delinquent loan cases know all the options available to them and avoid foreclosure at all costs.

"These transactions are intended to reduce the number of seriously delinquent loans that Fannie Mae owns, to help stabilize neighborhoods, and to offer borrowers access to additional foreclosure prevention options,” Cianci said.

To this end, the FHFA released enhanced requirements in early March for the buyers and servicers of Agency non-performing loans. As part of the new requirements, servicers who purchase non-performing Agency loans must apply a "waterfall of resolution tactics" before resorting to foreclosure. When foreclosure cannot be avoided, the loan owner is required to market the property exclusively to owner-occupants and non-profits before seeking out investors to purchase it.

According to the FHFA's most recent foreclosure prevention report issued in late March, Fannie Mae and Freddie Mac completed 307,200 foreclosure prevention actions combined in 2014 and have completed 3.4 million such actions since the conservatorship began in September 2008. Foreclosure prevention actions include home retention actions such as permanent loan modifications, repayment plans, and forbearance plans as well as home forfeiture actions such as short sales and deeds-in-lieu of foreclosure.