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Fannie Mae’s sales of reperforming loans are on the rise 

Freddie Mac’s RPL securitizations not so much

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Sales of reperforming loans nosedived in 2020 as the pandemic took root in America, but sales volume appears to have recovered with vigor, based on an analysis of RPL offerings for government-sponsored enterprise Fannie Mae.

The GSE earlier this month announced its 23rd sale of reperforming loans, which are defined by Fannie Mae as mortgages that were previously delinquent but are performing again because payments have become current — with or without the use of a modification plan. 

Including the recent October offering, Fannie Mae year to date has put on the market some 100,000 reperforming loans across five offerings with an aggregate unpaid principal balance of $14.5 billion, according to an analysis of the GSE’s records. By comparison, over the same period in 2020, a total of 57,235 RPLs were put on the sales block by Fannie Mae through four pool offerings that collectively had a total unpaid principal balance of $8.7 billion — or a bit more than half of the RPL sales volume recorded this year and $5.7 billion shy of the 2021 aggregate value mark. 

It’s worth noting that since Fannie Mae began selling RPL loans in October 2016 “to reduce the size of its retained mortgage portfolio,” Fannie Mae has not marketed an offering after the month of October. 

“The market for reperforming loans [overall] is up, way up [this year] as a result of many loans coming out of forbearance,” Tom Piercy, managing director of Denver-based Incenter Mortgage Advisors, said. “Many households impacted by COVID are recovering, whether through government assistance or becoming re-employed.”

He added that as the economy continues to improve and foreclosure moratoriums lift, “the forecast is for the reperforming market to maintain this high volume for many months to come.”

Ben Itkin, managing director of business development at Mortgage Capital Trading Inc. in San Diego, echoed Piercy’s assessment, saying RPL loan sales are “up, way up!”

“FNMA [Fannie Mae] has been the largest seller, and they give public color [information] on their trades,” he added.

The 2021 rebound in the RPL sales market, again, based on Fannie Mae’s sales, is on par with its offering activity in 2019, before the pandemic choked the market and liquidity dried up. That year through October, sales volume clocked in at 103,600 reperforming loans across five offerings involving a total unpaid principal balance of $17.1 billion.

“The FNMA [Fannie Mae RPL] pools are typically large in size, so investors will pay up for them,” Piercy said. “In addition to these pools is a robust market from small pools (a few loans here or even single loans) and medium-sized pools of $20 million to $30 million. … Every deal is slightly different, and every buyer has their own assumptions, but a general assessment of the market is these pools trade at a yield in the mid- to high 4% [range].”

On the other side of the aisle is Fannie’s brother and fellow GSE, Freddie Mac, which appears far more inclined to securitize RPL pools as opposed to selling the loans off its books. 

“To date [as of early October] Freddie Mac has … securitized more than $73 billion of RPLs,” states an October 5, 2021, press release announcing the pricing of a $564 million offering backed by a pool of reperforming loans. 

Despite the impressive cumulative total for Freddie Mac, over the past three years its securitizations have trended downward, from a total of seven offerings in 2019 backed by RPL pools with an aggregate value of nearly $13 billion to some six offerings in 2020 backed by reperforming loan pools with a total value of $8.2 billion, Freddie Mac’s records show. This year’s total, year to date through early October, stands at five offerings backed by RPL pools with a combined value of some $4.3 billion.

The RPL securitization pattern at Freddie Mac over the past year seems to mirror a trend observed anecdotally by one expert who follows that market closely.

“I can only tell you that we rated a slightly lower number of RPLs [securitizations] this year versus 2020, but it doesn’t necessarily mean the RPL market is slow this year,” said Quincy Tang, managing director and head of U.S. RMBS at credit rating agency DBRS Inc. “It’s possible that there is such a high issuance volume in other asset classes (prime, agency, non-QM, etc.) that [it] may have shifted the focus from RPL this year. Also, many RPL securitizations can be unrated.”

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