Freddie Mac Sells Off $667 Million In Non-Performing Mortgage Loans

March 31, 2017



The Federal Home Loan Mortgage Corporation, known as Freddie Mac, announced last week that it’s selling off non-performing loans to private investors. Freddie Mac is a public government-sponsored enterprise (GSE) headquartered in Virginia.


Freddie Mac was created in 1970 to help expand the mortgage market alongside the Federal National Mortgage Association (Fannie Mae). Previously, from 1938 to 1968 Fannie Mae was the only institution that bought mortgages leading to and encouraging more mortgage lending. Freddie Mac buys mortgages on the secondary market, pools them and then sells them as a mortgage-backed security to investors on the open market.  This market helps increase money for new home purchases.


The investors buying the $667 million non-performing loans are: Premium Mortgage Credit Partners I Loan Acquisition, Upland Mortgage Acquisition Company II and Rushmore Loan Management Services. All three companies had previous bought non-performing loans from Freddie Mac and Fannie Mae.  These three investors bought $1 billion of non-performing loans from Freddie Mac last year.


These non-performing loans, worth $667 million were said to be deeply delinquent averaging a 2-year or more delinquency. Most of these loans had already been evaluated for loss mitigation, loan modifications and other alternatives to foreclosure, or the loans were already in foreclosure. More than half the loans had been granted a modification and later went into default.  According to Freddie, these loans had been serviced either by Nationstar Mortgage and Specialized Loan Servicing (SLS).


The Department of Housing and Urban Development (HUD) has been selling their non-performing loans insured by the Federal Housing Administration (FHA) for the past 7 years. In the last 4 years, HUD has stepped up their pace at selling these loans to improve the finances of the Mutual Mortgage Insurance fund.


HUD has come under some criticism for selling the sale of government assets to profit-seeking investors. Critics are arguing that investors could walk away the most difficult loans leaving the property abandoned and blighting the neighborhood.


Also in question from critics are the reporting and disclosure with what the investors are doing with the loans. Are the borrowers getting good treatment? Are the buyers of the loans acting too quickly pushing the borrowers into foreclosure? Are the investors massing great amounts of wealth from distressed homeowners?


These critics are also arguing that these loans, and specifically the borrowers might be better served if the loans were sold to non-profit companies.


Freddie Mac’s transaction of the loans is currently scheduled to take place in May 2017 with the servicing transferred after the settlement.


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