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GSEs Making Push to Clear NPLs From Portfolios, Help Borrowers With Loss Mitigation

loss-mitigationWith Fannie Mae's announcement on Thursday that it is going to begin selling pools of non-performing single-family mortgage loans, it is clear that the GSEs are making a strong push to rid themselves of the backlog of deeply delinquent loans on their books five years after the peak of the foreclosure wave.

The Federal Housing Finance Agency (FHFA), which has been the conservator of Fannie Mae and Freddie Mac since September 2008, wants the two GSEs to clear out non-performing loans from their portfolios. Freddie Mac has conducted three sales of NPLs totaling $1.97 billion in unpaid principal balance in the last eight months, while Fannie Mae's next such sale will be its first. It will likely not be the last, though; Fannie Mae's SVP for Credit Portfolio Management, Joy Cianci, said the GSE is intent on “building these sales into a regular, programmatic offering to the market."

The two GSEs are not merely trying to excise these loans from their books, however – many of the loans are two years or even three years delinquent, meaning the borrowers who occupy the homes in those cases are in some stage of mitigation or are in foreclosure. The FHFA wants to help borrowers in these cases avoid foreclosure at all costs; in early March, FHFA issued enhanced requirements for the buyers and servicers of Agency non-performing loans that call for bidders to identify servicing partners at the time of qualification and complete a questionnaire to demonstrate a record of successful loan resolution through foreclosure alternatives.

Also as part of the enhanced requirements, servicers who purchase non-performing Agency loans must apply a "waterfall of resolution tactics" before resorting to foreclosure and report loan resolution results and borrower outcomes to Fannie Mae and Freddie Mac for four years after the NPL sale.

"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.

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.

Freddie Mac's most recent NPL sale occurred on March 25, when it sold 5,398 deeply delinquent loans in three pools with a combined $985 million in UPB. It was Freddie Mac's largest NPL sale ever; the previous two sales were in February for $392 million and in August 2014 for $596 million.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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