More than three-quarters of the delinquent mortgages Freddie Mac and Fannie Mae have sold since 2014 are still delinquent today, according to a new report.
Fannie and Freddie have sold delinquent mortgages in bulk since 2014. The mortgages are sold to investors at steep discounts to their face value in an attempt to help distressed homeowners find better outcomes than the government can provide and shield taxpayers from more losses caused by defaults.
The Federal Housing Finance Agency, Fannie and Freddie’s regulator, released its first report on the progress of the sales Thursday. The report covers loans were sold before June 30, 2015 — only about 21% of the 41,469 sold so far — and reflects outcomes through the end of last year.
Only 24% of the loans had reached any resolution by that time, according to the FHFA. Those, the agency wrote, were evenly divided between foreclosure and a mix of outcomes including short sales, permanent modifications, or self-cures, in which the homeowner catches up on their payments.
FHFA also conducted a trial using a control group of loans that were not sold to some that were. Only 14% of the loans that were sold avoided foreclosure, compared with 21% of the ones that weren’t.
The government has drawn criticism for the mortgage sales. Many consumer advocates say the investors who buy them have no experience helping distressed homeowners and no sense of responsibility to the communities where the homes are located. But few nonprofits are able to handle the financing or servicing of so many mortgages.
Separately on Thursday, the Federal Housing Agency announced changes to its distressed note sales program in response to such critiques. FHA has sold delinquent mortgages since 2012.
Some families whose loans are sold through FHA’s program may be eligible for principal reduction, according to the new guidelines. It will also make it easier for nonprofits to participate by letting them bid on “partial” pools, and target sales by geography.
The new FHA guidelines “sound great,” said Julia Gordon, executive vice president at the National Community Stabilization Trust, a nonprofit that works to combat blight.
They could make a “significant” difference in the ability of nonprofits to participate in the sales, while principal reductions could help homeowners, Gordon said. For now, though, neither FHFA nor FHA has reported out on principal reductions from prior sales.