Congress Questions GSE’s Non-Performing Home Loan Sales

Lew Sichelman

Five Democratic members of the Senate Finance Committee, including the panel’s chairman, have called on the Federal Housing Finance Agency to review the non-performing loan sales programs of Fannie Mae and Freddie Mac and the negative impact they have on the housing market.

While it is “critical” that Fannie and Freddie “remain committed to keeping families in their homes” and “to keep our housing stock in the hands of individual home owners,” that doesn’t appear to be the case, the group said in a letter to FHFA Sandra Thompson.

Citing the FHFA’s own figures, they said more than 60 percent of the 115,000 non-performing mortgages that have reached resolution resulted in the loss of the owners’ homes. And nearly 36 percent of the houses lost through foreclosure went to investors or the loans’ owners and were returned to the market as rentals.

That 36 percent, the senators pointed out, was the same share that were sold to families looking to buy a property. And, they noted, just 206 properties, a number which didn’t even rate a blip in the FHFA report, were sold to non-profits that are focused on expanding ownership and affordable housing opportunities.

Besides Finance Committee Chair Sherrod Brown of Ohio, the other signers on the letter to Thompson were: Jack Reed of Rhode Island, Ron Wyden of Oregon, Elizabeth Warren of Massachusetts, and Tina Smith of Minnesota. Both Brown and Warren have been particularly vocal about investors buying up and the renting instead of selling single-family houses.

The FHFA has been the conservator for the two government-sponsored enterprises since the Great Recession nearly 15 years ago.

The GSE’s motivation in selling non-performing loans to new owners is that the mortgages’ new owners would offer borrowers assistance the Enterprises cannot. Since 2015, Fannie and Freddie has transferred more than 678,000 non-performing loans.

But, since the Enterprises—sometimes known as “the agencies”—do not report the outcomes for borrowers whose mortgages are transferred, “it is impossible” to know whether the sales had the desired effect of keeping people in their homes or what happened to those who were ultimately forced to move, the letter noted.

The five lawmakers said both non-performing and re-performing loans are sold “almost exclusively to large, profitable investors” who benefit from easy access to properties if and when owners default. They also do not have to comply with the Enterprises’ servicing standards.

In addition, they pointed out that investors do not share the same housing mission “obligations” placed upon Fannie Mae and Freddie Mac.

“Selling large volumes of loans that had previously experienced distress to organizations without a housing mission makes it more likely that home owners’ well-being will come second to private profits if those home owners experience a future hardship,” they wrote.

Perhaps more troubling, they added, “a large share” of the sales result in properties being lost from the home ownership market altogether.

To ensure that Fannie and Freddie work to fulfill their housing mission, the lawmakers urged Thompson to conduct a “through review” of the GSE’s loan sales programs—Fannie, mostly through whole loan sales, and Freddie, largely via re-securitizations—and report back by mid-March.

The letter mentioned, in passing, a few investors by name, including PIMCO, Goldman Sachs and “affiliates” of large single-family rental operations, but did not include any examples or specific accusations. Also mentioned were Pretium, a single-family rental housing business operating in nearly two dozen states, and Lone Star Funds, a private equity firm.