Written By: Joel Palmer, Op-Ed Writer
The Federal Housing Finance Agency (FHFA) recently reported that nearly half of the almost 70,000 non-performing loans (NPLs) sold through last year had been resolved.
FHFA released its latest Enterprise Non-Performing Loan Sales Report last week. These reports include information about the sale of NPLs by Fannie Mae and Freddie Mac.
In 2012, FHFA developed a program to transfer credit risk. Within three years, the GSEs were transferring credit risk on nearly 90 percent of the loans that accounted for their overall credit risk, and that made up half of their overall acquisitions.
Selling NPLs reduces the number of delinquent loans held in GSE inventories and transfers credit risk to the private sector.
NPLs are generally one year or more delinquent. Purchasers are subject to requirements published by FHFA
As of June 30 of this year, the two GSEs sold 82,359 NPLs with an unpaid principal balance of $16 billion. These mortgages had an average delinquency of 3.3 years and an average current loan-to-value ratio of 97 percent.
Of the total of NPLs sold through the latest reporting period, 69,804 were settled by December 31, 2016.
FHFA reported that 48 percent of those NPLs had been resolved; 19 percent were resolved without foreclosure and 29 percent were resolved through foreclosure.
According to FHFA, NPLs help achieve more favorable outcomes for borrowers and communities than if these loans were continued to be held by the GSEs in their portfolios.
FHFA compared foreclosure rates between NPLs that had been with new servicers the longest with those that were not sold. Of the 1,700 that were sold and being serviced by different entities for 26 months, 36 percent avoided foreclosure. Among NPLs that were not sold, only 24 percent avoided foreclosure.
In a benchmark comparison, 36 percent of NPLs that have been with the new servicers the longest (1,737 NPLs with new servicers for 26 months) avoided foreclosure, compared to 24 percent of the NPLs that were not sold.
Additional outcomes of these transactions include:
• NPLs on homes occupied by borrowers had the highest rate of foreclosure avoidance with 21.2 percent foreclosure avoided versus 9.9 percent for vacant properties.
• About 47.8 percent of sold NPLs on vacant homes were eventually foreclosed, compared with 19.3 percent with borrower-occupied properties. FHFA notes that foreclosures on vacant homes typically improve neighborhood stability and reduce blight as the homes are sold or rented to new occupants.
• Fourteen percent of the permanent modifications of NPLs provided arrearage and/or principal forgiveness. The average forgiveness earned per loan to date was $30,443 (with the potential to earn an average forgiveness of $60,586).
Fannie sells NPLs through a National Pool Offering, while Freddie offers them through a Standard Pool Offering® (SPO®). These pools are generally large and geographically diverse, although some may be geographically concentrated.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.