In mid-May, HUD announced that some changes were coming to its Distressed Asset Stabilization Program (DASP), the program through which the Department sells deeply delinquent, non-performing loans.
Now it’s the FHFA’s turn, as the Agency has announced that it will make some changes to its non-performing loan (NPL) sales programs that will bring more transparency to the process by making more data public, including information on trends at the individual pool level. Special adviser to the FHFA Eric Stein said at the Urban Institute’s seminar on government NPL sales that FHFA anticipates publishing the data by the end of June.
HUD’s first NPL sales program began in 2010 and was renamed the Distressed Asset Stabilization Program in 2012. Freddie Mac began selling NPLs with a pilot program in 2014 and Fannie Mae followed suit in 2015. To date, HUD has sold about 105,000 loans through DASP and its single-family loan sales programs totaling about $18 billion in unpaid principal balance (UPB). Fannie Mae and Freddie Mac combined have sold approximately 39,000 NPLs totaling about $8.2 billion in UPB. The NPLs sold by HUD and the GSEs make up about 18 percent of the 820,000 delinquent loans in the HUD and FHFA mortgage portfolios combined. According to FHFA Director Mel Watt, more than half of the NPLs sold by the GSEs have been at least three years delinquent, and 9 percent of them were at least five years delinquent. The average time delinquent on the GSE non-performing loans sold is 3.1 years, according to Watt.
Housing analysts have contended since the sales began that the FHFA should release more data on the GSEs’ NPL sales in order to more effectively evaluate the sales to see if what changes, if any, need to be made. Karan Kaul of the Urban Institute noted in a white paper in late May that “housing researchers, including those at the Housing Finance Policy Center, have urged the government to release detailed performance data that would allow external researchers to study program effectiveness and provide feedback.”
HUD has released limited auction-level data on its NPL sales, but so far FHFA has not; the Agency anticipates that will change by the end of June, according to Stein.
Among the data housing analysts want to see released is the outcomes for borrowers. Both HUD and FHFA over the last year and a half have announced enhanced guidelines to their respective programs aimed at achieving the best outcomes for borrowers.
“Under our requirements, new buyers and new servicers must offer a waterfall of loss mitigation options that start with loan modifications,” Watt said in a speech in March. “For borrowers with loans originated before 2009, the new buyer and new servicer must begin by giving the borrower another chance to get a HAMP modification. For borrowers with more recent loans, the new buyer and new servicer must offer a proprietary modification that provides each borrower an opportunity to sustainably re-perform on their mortgage. Foreclosure may be used by these new buyers and servicers only as a last resort.”
According to Stein's presentation at the Urban Institute seminar, “NPL buyers and servicers, including subsequent servicers, are required to report detailed loan resolution results and borrower outcomes to the Enterprises for four years after the NPL sale." Also, “Consistent with applicable law, FHFA and/or the Enterprises will provide public reports on aggregate borrower outcomes at the pool level.” The newly-released data released will “help inform whether the NPL buyer and NPL servicer continue to be eligible for future sales based on pool level borrower outcomes, adjusted for subsequent market events,” according to Stein.
“Our enhanced requirements also require buyers and servicers to collect and provide information about borrower outcomes,” Watt said. “These requirements have been in effect for about one year, and we are now in the process of evaluating the results to assess outcomes and to determine whether further adjustments should be made. Consistent with what FHFA has adopted as our standard practice, we will be transparent about these results and will provide details on any changes that result from our review.”
Analysts have also stated that they want to see more information on how many borrowers actually benefit from the FHFA’s principal reduction program announced in mid-April. Under the criteria announced, as many as 33,000 borrowers with GSE-backed loans across the country could qualify for principal reduction. Analysts estimate, however, that the actual take-up rate is lower and that only about 6,300 borrowers may qualify.
In mid-April, at the same time the FHFA announced the principal reduction program, the Agency announced enhancements to its NPL sales programs requiring buyers of the NPLs evaluate borrowers for eligibility for modifications that include principal and/or arrearage forgiveness.
Click here for the FHFA's fact sheet on NPL sales released in mid-April.