The Federal Housing Finance Agency (FHFA), conservator of
Fannie Mae and Freddie Mac (the GSEs), released guidelines for their sales of
non-performing mortgage loans. FHFA earlier
approved sales as a mechanism to reduce the investment portfolios of the two enterprises
and to transfer some of the risk of their delinquent loans to the private
sector. FHFA said it believes that the sale of
severely delinquent loans through non-performing loan (NPL) sales will both reduce
GSE losses and improve borrower and neighborhood outcomes.
Bulk sales of delinquent debt is done on a substantially
discounted basis and in the case of secured debt investors generally bid on the
basis of the value of the underlying collateral. With rising home prices the attractiveness
of such debt has increased as has demand for it and there has been concern that
investors will fast-track foreclosures once they own the debt.