I Federal Housing Finance Agency (FHFA) on Tuesday released an update on the sale of non-performing loans (NPLs) by government-sponsored enterprises (GSEs), saying the data showed a sharp decline in mortgage defaults since the start of the COVID-19 pandemic.
“I [NPL] “The sales program reduces the number of delinquent loans in the business sector and transfers credit risk to the private sector,” explained FHFA. “FHFA and the Businesses are imposing requirements on NPL buyers that are designed to achieve better outcomes for borrowers than foreclosures.”
As of 31 December 2023, Fannie Mae again Freddie Mac held approximately 43,000 NPLs in its portfolio, 7% of which were sold or liquidated sometime during the first half of this year.
The program, which began in 2014, saw the GSEs sell a total of 171,333 loans with an unpaid principal balance (UPB) of $31.4 billion at the end of June 2024. These loans have a default rate of 2.8 years and an average current loan ratio of -to-market (LTV) of 82%. Foreclosures were avoided in about 40% of these cases.
The GSEs sold 2,969 non-performing loans – designated as such if they were delinquent for a year or more – with a UPB of $500 million during the first and second quarters of this year.
The FHFA noted that as delinquencies have decreased since the start of the COVID-19 pandemic and new loss reduction programs, “the number of NPL sales has also decreased and stabilized since 2021, when 24,164 NPL sales entities made UPB 4.1 billion.”
As of June 30, loans in GSE portfolios that were at least one year past due were 36,700. That’s down 82% from the 208,147 NPLs in the portfolio at the end of 2021.
The FHFA also released accompanying data detailing the type of pools sold, including average delinquencies ranging from 1.1 to 6.2 years. It said Fannie Mae was the largest participant with 117,000 NPLs sold, compared to Freddie Mac’s approximately 54,000. About 40% of the NPLs sold through the program came from New Jersey, New York and Florida, the FHFA said.
“The NPLs that were sold during this program resulted in fewer items being confiscated compared to the delinquent Enterprise NPLs that were not sold,” explained the agency. “Of the NPL properties in residential borrowers, 47% resulted in foreclosure avoidance, which exceeded the rates for both non-borrowers (44.7%) and vacant homes (17.7%).”
Additionally, the rate of NPL foreclosures was much higher in vacant homes (over 75%) than in occupied homes (under 29%). The FHFA asserts that foreclosures “generally improve neighborhood stability and reduce blight as homes are sold or rented to new residents.”
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