Despite Fannie Mae and Freddie Mac’s Bulk Sales Of NPLs, Number Of Delinquent Loans Remains High by Amanda Maher

As we reported just three weeks ago, Fannie Mae unloaded its third batch of non-performing loans, through the sale of 7,000 severely delinquent loans to Goldman Sachs and investment fund Fortress. Combined, these loans were valued at $1.24 billion. Freddie Mac has auctioned off eight rounds of NPLs.

The bulk-sale of such loans is intended to provide Fannie Mae and Freddie Mac with some cushion as their profits and capital reserves continue to decline. Shifting the delinquent loans to the private market is also intended to provide underwater borrowers with a wider range of loss mitigation options than Fannie Mae or Freddie Mac can offer.

Fitch Ratings has lauded the bulk sales, saying that a “deeper NPL market could help further extinguish the GSEs’ and banks’ crisis period residential mortgage asset quality issues.” A Fitch report continued: “At a minimum, the GSE’s NPL sales are an indication of further healing in the U.S. housing market.”

Fannie Mae

Not all analysts agree.

On Friday, Nomura released a new report that shows the current level of non-performing and re-performing loan transactions are at their highest level since the recession. Indeed, the level of NPL and RPL activity indicates that the housing market may not have rebounded quite as strongly as some suggest.

“Based on the number of past distressed loan sales and the amount of NPLs and RPLs that still exist on the books of Fannie Mae, Freddie Mac, HUD and commercial banks, even If the number of NPL and RPL sales stays at the current post-crisis high, there are still four years’ worth of potential NPL sales volume and more than six years’ worth of RPL sales volume to sort out,” Ben Lane wrote for Housing Wire after the Nomura report was released.

That’s also assuming that no other loans fall into delinquency.

Given how unlikely that will be, NPL and RPL sales volume will probably be even higher than outlined in the Nomura report, as the authors were quick to point out. Brock Vandervliet was the chief author of the report.

Vandervliet’s findings include the fact that Fannie Mae and Freddie Mac have decreased their NPL holdings from over $250 billion in 2010 to just $75 billion today. During this same time period, however, the GSEs’ RPL holdings increased to a peak level of $226 billion.

While much smaller in comparison, HUD’s non-performing loan portfolio also continues to increase – from $12.3 billion in delinquent and foreclosed loans in 2014 to $18.4 billion as of the end of the third quarter of this year.

The likely result? More bulk NPL sales—much to the dismay of affordable housing advocates.

A broad pool of advocates, which includes U.S. Senator Elizabeth Warren (D-Mass.) and the U.S Conference of Mayors, have called on Fannie Mae, Freddie Mac and HUD to stop selling off these delinquent loans which are most often bought by Wall Street investors. Given the dearth of affordable housing options, NPLs should be sold to nonprofits instead, who are best equipped to work with homeowners to avoid foreclosure and reinvest in affordable housing.

“An initial examination into four of the largest purchasers of HUD and Federal Housing Finance Agency loans has unearthed an array of disturbing business practices, ranging from those that clearly run counter to the goals of homeownership preservation and neighborhood stability to those that break laws, deceive homeowners, and harm taxpayers more generally,” states a report co-authored by the Center for Popular Democracy and the ACCE Institute.

Yet if Vandervliet’s analysis is indeed accurate, the NPL sales will continue full steam ahead as Fannie Mae and Freddie Mac wind down their restrained asset portfolios from $400 billion to $250 billion in accordance with the FHFA conservatorship agreement.

Housing advocates’ best hope is that the GSEs begin selling more loans through its Community Impact Pool, which bundles loans and sells them to a diverse range of buyers, including nonprofit organizations, smaller investors and minority- and women-owned businesses. As we’ve highlighted previously, of the 10,000+ loans that Fannie Mae has transferred to the private market, only 71 have been transferred through the Community Impact Pool. None were sold through the Community Impact Pool in Fannie Mae’s most recent bulk-sale.