The Federal Housing Finance Agency is set to make the sales of nonperforming loans by Fannie Mae and Freddie Mac more transparent, including providing information on trends at the individual pool level, according to a top agency official.
Eric Stein, a special adviser to the FHFA, said that the agency will publish performance data hopefully by the end of the quarter.
"We will be able to see if there are outliers" who are "not doing a good job, and would not be eligible for future sales," said Stein, speaking at an Urban Institute seminar on the government’s nonperforming loan sales.
Housing researchers have argued that the FHFA has not revealed enough data about the loan sales, making it hard to evaluate the program’s effectiveness and provide feedback.
Freddie was first government-sponsored enterprise to test the NPL market in 2014. Since then, Fannie and Freddie combined have sold close to 39,000 nonperforming single-family loans, totaling $8.2 billion.
On average, the loans sold by the GSEs are three years' delinquent. The two GSEs combined have nearly 200,000 nonperforming loans that are at least one-year delinquent.
FHFA recently required NPL buyers to evaluate distressed borrowers for principal reductions if they don't qualify for the Treasury Department's Home Affordable Modification Program.
If the mark-to-market, loan-to-value ratio and arrearages exceed a 115% loan-to-value ratio, then the nonperforming loan buyer must evaluate the borrower for a principal reduction and/or arrearage forgiveness.
In announcing this new requirement, FHFA acknowledged that "most NPL buyers already routinely offer principal and arrearage forgiveness today."
Don Mullen, the chief executive and chief investment officer of investment asset management firm Pretium Partners, which buys the GSE nonperforming loans, said at the Urban Institute seminar that a "reperforming loan is the least costly" outcome and provides the "highest returns and the best outcome for all parties." He added that his firm has the "ability to be aggressive about principal forgiveness."
But the upcoming NPL sales report will hopefully provide information about these principal reduction modifications as well as other outcomes, analysts said.
"It is understood a lot of the [buyers] are already doing principal reductions. But that is very anecdotal. I haven't seen any numbers," said Laurie Goodman, director at the Housing Finance Policy Center at the Urban Institute, in an interview. When FHFA releases its report, "that will give us a lot more information."
FHFA unveiled a principal reduction program April 14 that is focused on seriously delinquent loans still guaranteed by Fannie and Freddie.
NPL buyers face fewer restrictions than GSE servicers. For example, there is no limit on the loan size, compared to a $250,000 unpaid principal balance cap on principal reductions for GSE-serviced loans.
In April, when the FHFA unveiled its principal reduction program, the agency estimated that 33,000 delinquent homeowners could quality for the program. However, the agency said the actual "take-up" rate could be lower and just 6,300 borrowers with delinquent GSE-guaranteed loans might sign up and get a principal reduction.
"I would assume the take-up rate will be slightly lower on the NPL sales because these loans are more delinquent," Goodman said.
