The Federal Housing Finance Agency (FHFA) recently released the latest report on the sale of non-performing loans (NPLs) by Fannie Mae and Freddie Mac. The Enterprise Non-Performing Loan Sales Report includes information about NPLs sold through June 30, 2019 and reflects borrower outcomes on NPLs sold through December 31, 2018 and reported through June 30, 2019. 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.
This report shows that, through June 30, 2019, the GSEs sold 117,466 NPLs with a total unpaid principal balance (UPB) of $22.2 billion. NPLs sold had an average delinquency of 3.0 years and an average loan-to-value ratio of 92%.
NPLs in New Jersey, New York and Florida represented nearly half (45%) of the NPLs sold. These three states accounted for 47% of the Enterprises’ loans that were one year or more delinquent as of December 31, 2014, prior to the start of NPL program sales in 2015. Fannie Mae sold 78,281 loans and Freddie Mac sold 39,185 loans.
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 (36.6% foreclosure avoided versus 14.9% for vacant properties). NPLs on vacant homes had a much higher rate of foreclosure, more than double the foreclosure rate of borrower-occupied properties (73.4% foreclosure versus 31.4% 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.