Feds offload 126K delinquent loans

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  • The sale of non-performing loans (NPLs) lowers the number of delinquent loans in the Enterprises’ portfolios and transfers credit risk from the federal government to the private sector.
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WASHINGTON – Fannie Mae and Freddie Mac (“the Enterprises”) sold 126,757 non-performing loans last year that had a total unpaid principal balance of $23.8 billion, the Federal Housing Finance Agency reported June 1.

The sale of non-performing loans (NPLs) lowers the number of delinquent loans in the Enterprises’ portfolios and transfers credit risk from the federal government to the private sector. FHFA is the conservator of Fannie Mae and Freddie Mac.

NPL SALES HIGHLIGHTS

• NPLs that were sold had an average delinquency of 2.9 years and an average loan-to-value ratio of 91%.

• The average delinquency for pools sold ranged from 1.4 years to 6.2 years.

• NPLs in New Jersey, New York and Florida represented nearly half (44%) of the NPLs sold. Those three states accounted for 47% of the Enterprises’ loans that were one year or more delinquent as of Dec. 31, 2014, prior to the start of non-performing-loan program sales in 2015.

• Fannie Mae sold 86,216 loans with an aggregate unpaid balance of $15.8 billion, an average delinquency of 3.0 years, and an average loan-to-value ratio of 89%.

• Freddie Mac sold 40,541 loans with an aggregate unpaid balance of $8.1 billion, an average delinquency of 2.9 years, and an average loan-to-value ratio of 98%.

BORROWER HIGHLIGHTS

• Borrower outcomes in the report are based on 114,745 non-performing loans that were settled by June 30, 2019, and reported as of Dec. 31, 2019.

• 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 (38.3% foreclosure avoided versus 15.9% that were avoided for vacant properties).

• NPLs on vacant homes had a much higher rate of foreclosure, more than double the foreclosure rate of borrower-occupied properties (76.9% foreclosure versus 34.4% 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.

FHFA and the Enterprises impose requirements on NPL buyers which are designed to achieve more favorable outcomes for borrowers than foreclosure. For example: Servicers are encouraged to sell properties that have gone through foreclosure and entered Real Estate Owned (REO) status to individuals who will occupy the property as their primary residence or to nonprofits.

Also, buyers must agree they will not “walk away” from vacant properties, or enter into “contract for deed” agreements on REO properties, unless the purchaser is a nonprofit.