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Fannie Mae announces plans to securitize re-performing loans

Mortgage bonds built on previously delinquent loans coming later this year

Less than two weeks after the Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac will be reducing the principal on as many as 33,000 delinquent or underwater borrowers, Fannie Mae announced Monday that it plans to begin securitizing loans that were once delinquent.

Fannie Mae said Monday that will begin securitizing re-performing loans, which are loans that were delinquent but are now performing either thanks to a mortgage modification or without one, that are held on the government-sponsored enterprise’s balance sheet, later this year.

Fannie Mae said that its securitization of re-performing loans is scheduled to begin in the second half of 2016, adding that, over time, the GSE may choose to these mortgage-backed securities to investors.

Fannie Made added that the potential sales of these mortgage bonds will be based on market conditions and investor interest. 

Selling the re-performing loan mortgage bonds to investors is a way for the GSE to reduce the size of its mortgage portfolio and the risk that comes along with it.

“With these securitizations we’ll have more flexibility to manage our risk and reduce the size of our portfolio,” said Bob Ives, vice president of retained portfolio asset management, Fannie Mae. “Over the long run, these securitizations can benefit investors, Fannie Mae and taxpayers.”

A spokesperson for Fannie Mae said that none of the 33,0000 loans that are included in the FHFA’s principal reduction plan will be included in Fannie Mae’s re-performing loan securitizations, at least initially.

The spokesperson said that depending on the future performance of the soon-to-be-modified loans and the success of the initial re-performing loan securitizations, there may be future re-performing loan securitizations built on the loans that will see their principal reduced as part of the FHFA’s plan.

Fannie Mae will be joining Freddie Mac in securitizing re-performing loans, which Freddie began doing in 2011. According to a spokesperson for Freddie Mac, in 2015 alone the GSE securitized $8.2 billion of re-performing or modified loans, and has securitized a cumulative total of $23.6 billion in re-performing loans since 2011.

Fannie Mae said that in support of this program, it will enhance its loan-level disclosures for this loan population in order to provide continued transparency to investors.

The loan level disclosures will contain over 30 additional attributes for RPLs, including updated credit scores at issuance, delinquency status, and modification details.

(Correction: This article previously incorrectly stated that Freddie Mac was not engaging in re-performing loan securitizations. Freddie Mac began doing so in 2011. This article is corrected to reflect that fact.)

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