Mortgage finance company Fannie Mae revealed details Wednesday of its first-ever large sale of non-performing mortgages, a move that could make it easier for some of the borrowers behind the loans to stay in their homes.
Fannie Mae's auction will include 3,200 mortgages with $786 million in unpaid principal. The auction will be offered in two pools. The first one will have approximately $180 million in unpaid principal balance and the second one will carry the bigger piece of $606 million in unpaid principal balance.
Eventually, the company plans to auction off such loans regularly.
Some housing advocates have encouraged the mortgage-finance companies to ramp up such sales, arguing that private investors have more leeway to ensure borrowers can pay their loans again and avoid foreclosures.
Freddie Mac began selling non-performing loans last year. The U.S. Department of Housing and Urban Development has sold such loans for several years.
Fannie and Freddie have generally eschewed paring down loan balances for borrowers, which consumer advocates argue is one of the most powerful tools in keeping borrowers in a home. Some nonprofits have criticized Freddie Macs sales, arguing that the auctions quick turnaround times and the large size of the mortgage pools make it difficult for them to bid on such loans. Instead, most of the loans have gone to private investors, which the nonprofits say dont have as much incentive to try to keep borrowers in their homes.The Federal Housing Finance Agency, which regulates Fannie and Freddie, released new guidelines for the sales in March, stipulating that investors that buy the loans take certain steps before foreclosing. Some nonprofits have said that they dont think the guidelines go far enough, while mortgage investors say that the restrictions could dampen interest in purchasing the loans and lower their prices.
Fannie Mae explained that the pools of non-performing loans will be available for qualified bidders. Bids are due by May 6, with closing expected to happen before the start of the third quarter this year.
The Bank of America Merrill Lynch will market Fannie Mae's sale while Credit Suisse and The Williams Capital Group act as advisors.