FHFA Reviews Trends in GSEs’ Non-Performing Loan Sales

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The Federal Housing Finance Agency (FHFA) has released its latest report on the sale of non-performing loans (NPLs) by Fannie Mae and Freddie Mac, which shows that between August 2014 and December 2019, the GSEs sold 126,757 NPLs with a total unpaid principal balance (UPB) of $23.8 billion.

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

The report shows that NPLs 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.  These three states accounted for 47% of the GSEs’ loans that were one year or more delinquent as of Dec. 31, 2014.

Fannie Mae sold 86,216 loans with an aggregate UPB of $15.8 billion, an average delinquency of 3 years, and an average LTV of 89%. Freddie Mac sold 40,541 loans with an aggregate UPB of $8.1 billion, an average delinquency of 2.9 years, and an average LTV of 98%.

In terms of borrower outcomes on NPLs sold through June 30, 2019, and reported through Dec. 31, 2019 (114,745 total NPLs), NPLs on homes occupied by borrowers had the highest rate of foreclosure-avoidance outcomes (38.3% foreclosure avoided versus 15.9% 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.

For more details from the FHFA’s report, click here.

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