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As they promised earlier this year, Fannie Mae and Freddie Mac have intensified their efforts in the last few months to rid their single-family residential mortgage portfolios of deeply delinquent, non-performing loans (NPLs).
On Thursday, Freddie Mac announced it is marketing a bundle of NPLs with $1.2 billion in aggregate unpaid principal balance, the largest NPL sale to date. It is Freddie Mac's sixth NPL sale of the year and the seventh overall; the first occurred last year in July. Including yesterday's NPL transaction, Freddie Mac has offered nearly $4 billion worth of NPL sales over the last 13 months.
Freddie Mac reported on its blog on Friday that the mission of its NPL sales program is four-fold. According to Freddie Mac, the purposes of the program are to:
- Help reduce less liquid assets via economically sensible transactions;
- Encourage broad investor participation;
- Consider borrower outcomes, neighborhood stability, and the market; and
- Provide a well-controlled and transparent process.
"We continue to work to broaden participation in our auctions by marketing our transactions to a extensive investor group–including community-based organizations, nonprofits and women- and minority-owned businesses," Freddie Mac said on the blog.
Meanwhile, Fannie Mae closed its first-ever bulk NPL sale in May. That transaction included approximately 3,000 deeply delinquent residential single-family mortgage loans totaling about $762 million in UPB. In mid-July, Fannie Mae began marketing another bulk NPL sale with nearly 4,000 loans and $788 million in UPB.
Private investors as well as non-profits and minority- and women-owned businesses are encouraged to bid in each auction. Bidders must be pre-approved to participate in the NPL auctions; they must meet the guidelines set by FHFA in March. Among other requirements, bidders must identify servicing partners at the time of qualification and complete a questionnaire to demonstrate a record of successful loan resolution through foreclosure alternatives. Also, servicers who purchase non-performing Agency loans must apply a "waterfall of resolution tactics" before resorting to foreclosure.
"The goal of our non-performing loan sales is to be able to offer borrowers additional options to avoid foreclosure, while also reducing the number of seriously delinquent loans in Fannie Mae’s portfolio,” said Joy Cianci, Fannie Mae’s SVP for Credit Portfolio Management. “We hope to inspire opportunities for non-profit organizations, smaller investors, minority- and women-owned businesses and community groups to work together to help more borrowers avoid foreclosure and collaborate on neighborhood stabilization efforts.
With the conservatorship approaching seven years old in September, the ultimate goal is to lighten the burden for taxpayers.
"FHFA's expectation is that the sale of seriously delinquent loans through non-performing loan sales will result in more favorable outcomes for borrowers, while also reducing losses to the Enterprises, and, therefore, to taxpayers," the GSEs' conservator, FHFA, wrote in its 2014 Report to Congress released in June.
