Democratic lawmakers and housing advocates have been calling for the GSEs to sell non-performing loans (NPLs) to non-profits and Community Development Financial Institutions, and on Wednesday, they partially got their wish.
Freddie Mac announced as part of a $1.4 billion NPL sale that the winning bidder in two of the pools was Community Loan Fund of New Jersey, Inc. Of the 6,816 deeply delinquent loans sold as part of the auction, 296 of them were included in the two pools sold to the non-profit. According to Freddie Mac, the first pool consisted of 113 loans in Miami, Florida, that were an average of 57 months delinquent, with $27 million in unpaid principal balance (UPB). The second pool consisted of 183 loans in Tampa, Florida, that were an average of 51 months delinquent, with $37.6 million in UPB.
Those two pools were sold as Extended Timeline Pool Offerings (EXPOs), which are smaller, geographically-concentrated pools of loans that target participation from smaller investors, including non-profits, minority- and women-owned businesses, neighborhood advocacy funds, and private investors who are active in the NPL market, according to Freddie Mac.
The transaction consisted of seven pools total: the two EXPOs and five Standard Pool Offerings (SPOs). The winning bidders in the SPO auctions were LSF9 Mortgage Holdings for three of the pools and Rushmore Loan Management Services for two of the pools. The loans in the seven pools combined were an average of four years delinquent.
In March 2015, Freddie Mac’s regulator, FHFA, announced enhanced guidelines for NPL sales by the GSEs aimed at achieving better outcomes for borrowers. Bidders must identify their servicing partners and must complete a questionnaire demonstrating a record of successful loss mitigation. Servicers must apply a “waterfall of resolution tactics” before resorting to foreclosure. Given the deeply delinquent status of the loans, many of them have already been evaluated for are in various stages of loss mitigation. According to Freddie Mac, 34 percent of the aggregate pool balance of loans were previously modified and then became delinquent.
In early March 2016, a group of 45 members of the House of Representatives led by Mike Capuano (D-Massachusetts) wrote a letter to HUD Secretary Julián Castro and FHFA Director Mel Watt suggesting improvements to the agency NPL sales programs, including disqualifying “bad actors” from the process and making the programs more transparent. Democratic lawmakers and housing advocates have complained that private investors, to which a majority of the agency NPLs are sold, are more concerned with making a buck than they are with achieving the best outcomes for borrowers and neighborhoods.
Earlier this week, Republican lawmakers Rep. Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, and Sen. Richard Shelby (R-Alabama), Chairman of the Senate Banking Committee, wrote a letter to Castro and Watt urging them to reject calls to change the agency NPL sales programs, saying that any changes may pose a threat to taxpayers.