The Federal Housing Finance Agency's first report on the sales of nonperforming loans owned by Fannie Mae and Freddie Mac may seem discouraging at first.
Of the 8,849 such loans sold before June 30, 2015, only 24% were resolved, roughly half through foreclosures.
Yet the results, released Thursday, also show that a significant percentage of loans sold to investors had better outcomes than nonperforming loans in the portfolios of Fannie and Freddie, according to Laurie Goodman, co-director of the Housing Finance Policy Center at the Urban Institute.
Eight months after the loans were sold, 21% of the borrowers avoided foreclosure while 16% were foreclosed upon, according to the FHFA report. That compares with 14% of borrowers of loans held in GSE portfolios who avoided foreclosure and 20% who were foreclosed upon.
"What that says is the NPL sales are better at avoiding foreclosure and resolving loans more quickly than leaving the severely delinquent loans in GSE portfolios," Goodman said. "The difference between 21% and 14% seems very material to me."
Investors buying nonperforming loans have incentives to offer principal reductions and more flexibility in modifying loans than GSE servicers, Goodman said.
But Julia Gordon, an executive vice president at the National Community Stabilization Trust, noted that the FHFA report does not provide details about the loan modifications or principal reductions used to help the distressed homeowners.
"One of the things they tout is more foreclosure alternatives were achieved through the note sales. What we don't know is the sustainability of the loss-mitigation that occurred," Gordon said in an interview Thursday. She expects future reports to provide for more details about the loan modifications.
FHFA Director Mel Watt said in a press release that "because the program is new, we have only preliminary data about outcomes to share, but we will continue to provide regular reports as we gain new outcome information."
Gordon said the report already provides a lot of "extremely useful" information. "They obviously put in an enormous amount of work into this," she said.
Mike Fratantoni, the chief economist of the Mortgage Bankers Association, said Fannie and Freddie have achieved a number of positive results from these sales.
"First, they have reduced the amount of illiquid assets on their portfolios," Fratantoni said in a statement. "Second, they have sold these loans to other investors who might have more flexibility in resolving the underlying performance issues. Third, to this point, it does appear that foreclosure has been avoided for many families."
"Finally," the statement said, "FHFA in releasing this report is displaying an admirable degree of transparency, which should help to further sales into this market, both from the GSEs and from lenders."