COVID Programs Halted NPL Sales in 2021
Written By: Joel Palmer, Op-Ed Writer
Following a 60-percent decline over the previous five years, the number of newly delinquent loans held by Fannie Mae and Freddie Mac quadrupled in the first six months of this year amid new loss mitigation programs instituted to deal with the COVID-19 pandemic.
The Federal Housing Finance Agency (FHFA) released the latest report on the sale of non-performing loans (NPLs) by Fannie Mae and Freddie Mac last week. The report includes sales information about NPLs sold through June 30, 2021.
This report shows that the enterprises sold 130,808 NPLs with a total unpaid principal balance (UPB) of $24.5 billion from program inception in 2014 through June 30, 2021. The loans included int he NPL sales had an average delinquency of 2.9 years and an average current mark-to-market loan-to-value (LTV) ratio of 91 percent.
The enterprises had no NPL sales in the first half of 2021. That’s because FHFA directed them to implement loss mitigation programs in response to COVID-19. These included mortgage payment forbearance, deferral and flex modification for borrowers.
As a result, the number of NPLs increased from 51,500 from the end of 2019 to 79,600 at the end of 2020. As of June 30, 2021, Fannie and Freddie held more than 331,000 NPLs in their portfolio.
Of the NPLs that have been sold with reportable outcomes through December 2020, 79 percent had been resolved, 35 percent without foreclosure, and 44 percent through foreclosure.
NPLs in New Jersey, New York and Florida represented 43 percent) of the NPLs sold.
NPLs on homes occupied by borrowers had 41.2 percent foreclosure avoided versus 17.1 percent for vacant properties. Foreclosures on vacant homes typically improve neighborhood stability and reduce blight as the homes are sold or rented to new occupants. The average UPB of NPLs sold was $187,588.
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 enterprises impose requirements on NPL buyers designed to achieve more favorable outcomes for borrowers than foreclosure.
Fannie Mae offers and sells NPLs through a National Pool Offering (NAT), and Freddie Mac offers and sells NPLs through a Standard Pool Offering (SPO). These pools are generally large and geographically diverse, although some may be geographically concentrated, according to the report.
Each enterprise also offers pools structured to attract participation by nonprofits, small investors, and minority- and women-owned businesses. Fannie Mae refers to these pools as Community Impact Pools (CIPs), and Freddie Mac refers to these pools as Extended Timeline Pool Offerings (EXPOs). These are smaller pools and are typically geographically concentrated. The timeline between transaction announcement and the bid due date is approximately two weeks longer than the typical marketing period, providing smaller investors more time to secure funds to participate in the NPL sale.
About the Author
As an NAMU® 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.
