Feds seeks to dump Fannie and Freddie’s non-performing mortgages

October 17, 2012

A new plan of action

At the 2012 Governor’s Housing Conference in Maryland, Treasury Under Secretary for Domestic Finance, Mary Miller said on stage that the U.S. Treasury Department is working with the Federal Housing Finance Authority (the conservator overseeing Fannie Mae and Freddie Mac since 2008) to “explore better ways to manage the resolution and disposition of the GSE’s [government sponsored entities, Fannie and Freddie’s] book of non-performing loans.”

Outside help appears to be the Treasury’s answer to relieving Fannie and Freddie of their non-performing mortgage loans, seeking to shift responsibility of the “special servicers” focused on troubled loans, which Miller said “could give such servicers more flexibility to determine modifications or find faster resolutions for troubled borrowers.”

The special servicers became the hot item when distressed loan investors aligned after the housing crash with servicers with extensive experience with defaulted borrowers, which typically have more flexibility to contact borrowers earlier in the process and customize modifications which reduce the expenses of the loan holder.

Perhaps not so new

But Fannie and Freddie have already sought outside help on their most troublesome loans, bringing on Nationstar Mortgage last year, which they say “significantly” improved their portfolio. This fall, Nationstar said in a statement that the purchase of servicing and sub-servicing agreements is a $300 billion market.

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Miller proclaimed that numerous states “are experimenting” with special servicers by using the Treasury’s Hardest Hit Fund to purchase non-performing loans from private lenders.

“So far, there is a great deal of interest in this innovative approach,” Miller said. “We hope for positive outcomes for individual borrowers as well as for local housing markets that should see fewer properties going into foreclosure.”

Selling delinquent loans is a move welcomed by investors who obviously want more profits, a move which the Department of Housing and Urban Development recently undertook, selling off delinquent loans insured by the Federal Housing Administration.

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