The governmental agency that oversees the Enterprises—Fannie Mae and Freddie Mac (or the GSEs)— has released their latest report on the sale of non-performing loans (NPLs) which now includes sales information on NPLs sold through December 31, 2022, but borrower outcomes only date through June 30, 2022.
According to the Federal Housing Finance Agency (FHFA), the sale of NPLs reduces the number of delinquent loans in the GSE’s portfolios and transfers credit risk to the private sector. The FHFA and the GSE’s impose requirements on NPL buyers designed to achieve more favorable outcomes for borrowers than a foreclosure would be.
This report reflects activity reported prior to FHFA's decision in February 2023 to pause Enterprise NPL and RPL Sales during a review of the sales programs. The pause was lifted in June 2023. FHFA also published an updated NPL/RPL Fact Sheet in June 2023 reflecting enhancements to the NPL and RPL sales programs, including:
Loans that are under a forbearance plan, or that were under a forbearance plan within the past 90 days, are not eligible to be included in NPL or RPL sales.
RPL buyers and servicers, including subsequent servicers, are required to provide loan level reporting to the Enterprises for four years after the RPL sale.
RPL buyers' servicers are first required to evaluate borrowers who are able to resolve a financial hardship for loss mitigation that keeps the same monthly mortgage payment by moving past-due principal and interest to the end of the loan as a non-interest-bearing balance (payment deferral), due and payable at maturity, sale, refinance, or payoff.
The December 2022 NPL Sales Report shows that the Enterprises sold 163,297 NPLs with a total unpaid principal balance (UPB) of $30.0 billion from program inception in 2014 through December 31, 2022. The loans included in the NPL sales had an average delinquency of 2.8 years and an average current mark-to-market loan-to-value (LTV) ratio of 84% (not including capitalized arrearages).
NPL Sales Highlights:
- The average delinquency for pools sold ranged from 1.1 years to 6.2 years.
- Freddie Mac has sold 50,567 loans with an aggregate UPB of $9.7 billion, an average delinquency of 2.7 years, and an average LTV of 90%.
- Fannie Mae has sold 112,730 loans with an aggregate UPB of $20.3 billion, an average delinquency of 2.8 years, and an average LTV of 81%.
- NPLs in New Jersey, New York, and Florida represent 40% of the NPLs sold.
Borrower Outcomes Highlights:
- The borrower outcomes in the report are based on 152,313 NPLs that were settled by June 30, 2022, and reported as of December 31, 2022.
- Compared to a benchmark of similarly delinquent Enterprise NPLs that were not sold, foreclosures avoided for sold NPLs were higher than the benchmark.
- NPLs on homes occupied by borrowers had the highest rate of foreclosure avoidance outcomes (43.8% foreclosure avoided versus 17.4% for vacant properties).
- NPLs on vacant homes had a much higher rate of foreclosure, more than double the foreclosure rate of borrower-occupied properties (75.4% foreclosure versus 28.8% for borrower occupied properties). Foreclosures on vacant homes typically improve neighborhood stability and reduce blight as the homes are sold or rented to new occupants.
- The average UPB of NPLs sold was $184,231.
The FHFA has made a commitment to provide reporting on NPL sales borrower outcomes on a regular basis; in addition, the FHFA is considering alternative measurements to compare borrower outcomes post-sale to similarly delinquent Enterprise NPLs that were not sold.
Click here to see the NPL report in its entirety.