GSEs Issue Report on Non-Performing Loans

The Federal Housing Finance Agency (FHFA) has released the latest report on the sale of non-performing loans (NPLs) by Fannie Mae and Freddie Mac (the GSEs). The Enterprise Non-Performing Loan Sales Report includes sales information about NPLs sold through June 30, 2022. Borrower outcomes reflect NPLs sold through December 31, 2021.

The FHFA reports that the sale of NPLs reduces the number of delinquent loans in the GSEs' portfolios and transfers credit risk to the private sector. FHFA and the GSEs impose requirements on NPL buyers designed to achieve more favorable outcomes for borrowers than foreclosure.

The report shows that the GSEs sold 155,034 NPLs with a total unpaid principal balance (UPB) of $28.7 billion from program inception in 2014 through June 30, 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 86% (not including capitalized arrearages).

NPL Sales highlights include:

• The average delinquency for pools sold ranged from 1.1 years to 6.2 years.
• Fannie Mae has sold 104,467 loans with an aggregate UPB of $19 billion, an average delinquency of 2.8 years, and an average LTV of 84%.
• 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%.
• NPLs in New Jersey, New York, and Florida represent 41% of the NPLs sold.

Borrower outcome highlights include:

• The borrower outcomes in the Report are based on 152,251 NPLs that were settled by December 31, 2021, and reported as of June 30, 2022.
• Compared to a benchmark of similarly delinquent GSE 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 (41.1% foreclosure avoided versus 17% for vacant properties).
• NPLs on vacant homes had a much higher rate of foreclosure, more than double the foreclosure rate of borrower-occupied properties (73.9% foreclosure versus 27.6% 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 $185,317.

Fannie Mae offers and sells NPLs through a National Pool Offering (NAT), and Freddie Mac offers and sells NPLs through a Standard Pool Offering (SPO). These Pools are generally large and geographically diverse, although some may be geographically concentrated.

Each GSE also offers Pools structured to attract diverse participation by non-profits, small investors, and minority- and women-owned businesses. Fannie Mae refers to these pools as Community Impact Pools (CIPs), and Freddie Mac refers to these pools as Extended Timeline Pool Offerings (EXPOs). CIPs and EXPOs are smaller sized pools and are typically geographically concentrated. The timeline between transaction announcement and the bid due date is approximately two weeks longer than the typical marketing period, providing smaller investors more time to secure funds to participate in the NPL sale.