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FHFA Enacts New Rules for Sales of Non-Performing GSE Loans

FHFA Fannie Mae Freddie Mac Non-Performing LoansIn an ongoing effort to reduce the number of non-performing loans (NPLs) in the portfolios of Fannie Mae and Freddie Mac and transfer risk to the private sector, the GSEs' conservator, the Federal Housing Finance Agency (FHFA), on Monday announced enhanced requirements for the sales of NPLs by the GSEs.

Freddie Mac has sold severely delinquent loans through two transactions in the past six months, one that totaled $596 million in unpaid balance (UPB) in August 2014 and one in February 2015 that covered $392 in UPB. Sales of NPLs by the two Enterprises generally include loans that are seriously delinquent, which are those that are 90 days or more past due. In many cases, the seriously delinquent loans in the GSE portfolios are more than a year overdue.

The enhanced requirements announced Monday by the FHFA are based in part on a review of Freddie Mac's initial two transactions in addition to other considerations, according to FHFA's announcement.

"FHFA expects that with these enhanced requirements, NPL sales by Freddie Mac and Fannie Mae will result in more favorable outcomes for borrowers and local communities, while also reducing losses to the Enterprises and, therefore, to taxpayers," FHFA Director Melvin L. Watt said.  "Under the requirements announced today, servicers must consider borrowers for a range of alternatives to foreclosure."

FHFA expects the enhanced requirements to encourage broad participation by potential investors and also provide for future publication of aggregate data about borrower outcomes, according to Monday's announcement.

The enhanced requirements announced Monday include: requiring bidders to identify servicing partners at the time of qualification, and also requiring bidders to complete a questionnaire to demonstrate a record of successful loan resolution through foreclosure alternatives; requiring the new servicer to evaluate all pre-2009 borrowers (other than those with a vacant property or an imminent foreclosure sale date) for the government's Home Affordable Modification Program (HAMP), and evaluating all post-2009 borrowers for proprietary modifications; requiring servicers to apply a "waterfall of resolution tactics" before resorting to foreclosure, a waterfall that includes evaluating borrowers for HAMP eligibility or proprietary modification eligibility, short sale, or deed-in-lieu of foreclosure; encouraging servicers to sell foreclosed or REO properties to either a non-profit or someone who will occupy the property as a primary residence; requiring subsequent servicers to assume duties of the initial servicer; providing for better bidding transparency by developing a process for announcing upcoming NPL sale offerings that includes a proactive outreach to all potential bidders; and requiring buyers and servicers to report loan resolution results and borrower outcomes to Fannie Mae and Freddie Mac for four years after the NPL sale.

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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