Freddie Mac [1] announced an approximate $400 million non-performing loan (NPL) transaction, which is an auction of seasoned non-performing residential first lien whole loans held in Freddie Mac’s mortgage-related investments portfolio. The NPLs are currently serviced by Specialized Loan Servicing LLC.
The NPLs are being marketed via five pools: four Standard Pool Offerings (SPO) and one Extended Timeline Pool Offering (EXPO), which targets participation by smaller investors, including non-profits and Minority, Women, Disabled, LGBT, Veteran or Service-Disabled Veteran-Owned Businesses (MWDOBs).
Bids are due from qualified bidders by October 31, 2019 for the SPO pools, and November 14, 2019 for the EXPO pool. The SPO pools are expected to settle in January 2020, and February 2020 for the EXPO pools.
All eligible bidders, including private investors, MWDOBs, non-profits and neighborhood advocacy organizations are encouraged to bid. To participate, all potential bidders are required to be approved by Freddie Mac and must successfully complete a qualification package to access the secure data room containing information about the NPLs and to bid on the NPL pool(s). The bids are to be made on an all-or-none basis for any pool separately or for any combination of SPO pools together. The winning bidder will be determined on the basis of the economics of the bids, subject to meeting Freddie Mac’s internal reserve levels, at Freddie Mac’s sole discretion.
Advisors to Freddie Mac on the transaction are J.P. Morgan Securities LLC, and First Financial Network, Inc.
According to the FHFA, the purpose of the sale of non-performing loans (NPL) by the GSEs is to reduce the number of delinquent loans held in their inventories and transfers credit risk to the private sector.
“The sales help achieve more favorable outcomes for borrowers and local communities than the outcomes that would be achieved if the Enterprises held the NPLs in their portfolios,” the FHFA states. “The sales also help reduce losses to the Enterprises and to taxpayers.”
The NPLs sold by Fannie and Freddie as of December 31 had an average delinquency of 1.4 to 6.2 years and an average loan-to-value ratio of 92%. Nearly half of the loans sold (45%) are from New Jersey, New York and Florida. The FHFA states that prior to the start of NPL program sales in 2015, these three states accounted for 47% of the GSE’s loans that were one year or more delinquent.