Fannie Mae and Freddie Mac officially launched their non-performing loan (NPL) sales programs in 2015 after their conservator, the Federal Housing Finance Agency (FHFA), issued enhanced guidelines for those programs in March.
On Thursday, the FHFA provided an annual update on the progress of Fannie Mae’s and Freddie Mac’s non-performing loan sales programs as well as other GSE programs in the FHFA’s 2015 Scorecard Progress Report.
The purpose of the Scorecard Progress report is to summarize the major activities of Fannie Mae and Freddie Mac that contributed to achieving the FHFA’s three objectives as conservator of the GSEs as set forth in the 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac, which was published in May 2014. Those three objectives are: Maintain foreclosure prevention activities and credit availability for new and refinanced mortgages to foster national housing markets that are liquid, efficient, competitive, and resilient; Reduce risk to taxpayers by increasing the role of private capital in the mortgage market; and build a new single-family securitization infrastructure for the GSEs to use and for other secondary market participants to use in the future.
“This Progress Report underscores our commitment to accomplishing our goals of fostering liquidity and efficiency in the housing finance markets, reducing risk to taxpayers, and building a new mortgage securitization infrastructure, and our commitment to doing so in a safe and sound manner,” FHFA Director Melvin L. Watt said. “Working collaboratively with Fannie Mae and Freddie Mac, we have accomplished a tremendous amount over the past year and we look forward to building on this success in 2016.”
Under the objective of foreclosure prevention, the 2015 scorecard called for the GSEs to reduce the number of severely delinquent loans in their single-family portfolios. The purchaser’s final interest, according to FHFA, is helping the borrowers avoid foreclosure and re-perform on their loans.
“Purchasers typically transfer loan servicing to a specialty servicer skilled at working with borrowers to achieve a mutually beneficial outcome,” FHFA said in the report. “Thus, an NPL sale can increase the potential for a borrower to benefit from foreclosure avoidance actions, such as a HAMP or proprietary modification, forbearance, a short sale, or a deed-in-lieu transaction.”
“Working collaboratively with Fannie Mae and Freddie Mac, we have accomplished a tremendous amount over the past year and we look forward to building on this success in 2016.”
FHFA Director Mel Watt
Freddie Mac conducted an initial pilot sale in August 2014 covering $596 in unpaid principal balance (UPB) and another one in March 2015 covering $349 in UPB. Also that month, the FHFA issued enhanced guidelines for the GSEs’ NPL sales programs aimed at further reducing the Enterprises’ losses and improving borrower and neighborhood outcomes. Under the new guidelines, bidders in the NPL auctions must show evidence that they have the experience and capability to help borrowers avoid foreclosure; they must identify their servicing partners and demonstrate a successful track record of loan resolution through foreclosure alternatives; apply a “waterfall of resolution tactics,” using foreclosure only as a last resort; market to owner-occupants and non-profits first when an NPL results in an REO property; increase transparency of the sale process and post-sale borrower outcomes by increasing pre-sale and post-sale disclosures; and encourage bids from non-profits who have the objective of stabilizing neighborhoods through offering smaller pools.
After the requirements were issued, Freddie Mac conducted eight more NPL sales covering 24,372 loans in 24 pools. Fannie Mae conducted a pilot sale in June 2015 covering 2,477 loans, after which the Enterprise received the go-ahead to conduct more sales. Later in 2015, Fannie Mae conducted two more NPL sales; in all, the transactions included six pools of collateral covering 7,965 loans.
“Both Enterprises developed pages related to NPL sales on their web sites to educate and assist interested bidders,” the FHFA said. “In an effort to encourage more nonprofit bidders, both also hosted one-day NPL seminars featuring overviews of bidder-qualification, eligibility, and data-room-access requirements, and bidding, funding, closing, and servicing processes.”
The GSEs worked to strengthen existing relationships with diverse broker-dealers to ensure more diversity and inclusion in the NPL sales, according to FHFA. Fannie Mae and Freddie Mac engaged diverse broker-dealer firms to help market NPL sales to non-profits and small investors for each NPL transaction.
“The Enterprises and FHFA will assess borrower outcomes of NPL sales going forward,” FHFA said. “Because of the time it takes to transfer sold loans to a new servicer, evaluate borrowers for foreclosure prevention actions and complete trial periods for loan modifications, it requires six to twelve months after the date of an NPL sale to receive meaningful data on borrower outcomes. FHFA plans the first public release of NPL sales data in 2016.”
Click here to view the FHFA’s complete 2015 Scorecard Progress Report.