Freddie Mac has sold about $1.1 billion of seriously delinquent loans serviced by Wells Fargo, the mortgage giant announced Tuesday.
The 5,311 loans have been delinquent for an average of three years. The aggregate pool, which comprises five separate loan pools, is geographically diverse.
Three separate bidders won the auction. Pretium Mortgage Credit Partners in New York, founded by former Goldman Sachs Partner Donald Mullen, acquired three separate pools, totaling $657.8 million in unpaid balance. Rushmore Loan Management Services in Irvine, Calif., won a $184.1 million loan pool. 21st Mortgage won a $214.2 million loan pool.
The auction is scheduled to settle in February and servicing rights will be transferred after settlement.
Wells Fargo Securities, JPMorgan Securities and First Financial Network were financial advisers to Freddie on the auction.
Both Freddie and rival Fannie Mae are expected to step up sales of nonperforming loans in 2016; Bank of America Merrill Lynch are calling for total sales by both government sponsored enterprises of up to $12 billion.
Sales volumes had reached approximately $6 billion as of October 2015, when BAML released its 2016 forecast; with roughly 45% coming from Fannie Mae and 55% coming from Freddie.
"GSE scorecard requires the GSEs to reduce the NPLs on its balance sheet and non-performing loan sales will probably remain an important of their strategy to do so," the October report states. "NPL sales also help GSEs accomplish the goal to reduce less liquid assets in its retained portfolio".
The Department of Housing and Urban Development (HUD) has historically been the major supplier of NPLs, selling massive chunks under its “Single Family Loan Sale Initiative” started in 2010.
HUD has sold these loans to investors via periodic auctions. But sales have dropped significantly in 2015. According to BofAML, 2015, HUD has carried out a single NPL sale of $1.4 billion unpaid principal balance, down from $9.5 billion in 2014 and $4.9 billion in 2013.
BofAML attributes the lower sales to a change in HUD’s loan auction post-sale requirements in April 2015. Among other restrictions, HUD barred foreclosure sales for one year after sale (instead of six months as before) and added a requirement wherein buyers needed to report on borrower outcomes even after a note has been re-sold.
"We think the effect of this change in the requirements will continue to repress the NPL sale volumes from HUD and expect 2016 NPL supply from HUD to be $2 billion to $3 billion," the report states.
BofAML expects ramped up sales of NPLs by the GSEs to make up for the shortfall in HUD sales. "Altogether, we expect a steady pace of NPL sales from banks, and an increasing supply from the GSEs to more than make up the pullback in sales from HUD," said analysts in the report.
The chart below tracks NPL sales by banks and the GSEs.