Fannie Mae and Freddie Mac purchased nearly $267 billion in nonperforming loans out of mortgage-backed securitization pools during the first half of the year, a figure that potentially could lead to massive foreclosures down the road if the government-sponsored enterprises cannot rework these problem loans.
The acquisition of nonperforming loans from MBS trusts was a record by far and it appears both GSEs, for now, are winding down their repurchases.
Fannie bought $170 billion in NPLs out of trusts during the first half, saving close to $1.4 billion, noted one source familiar with the matter. Freddie repurchased $96.8 billion, according to a public filing with the Securities and Exchange Commission.
By acquiring delinquent loans, the GSEs can save massive amounts of money because they do not have to pass on principal and interest payments on the loans to the end bond holders.
But the acquisitions could also foretell more foreclosures.
"We're hearing plenty of talk that the GSEs are ramping up to start pushing foreclosures through the pipeline," said one mortgage insurance executive who works closely with them.
Investors in the nonperforming loan market, foreclosure vendors and Wall Street analysts are keeping a close eye on GSE delinquent loans as a harbinger of where the market might be headed.
Estimates vary but some mortgage advisers and analysts predict that foreclosures could total upward of 7 million units over the next three years.
There is talk that the GSEs might list some of their NPLs on auction site bulletin boards.
Meanwhile, Fannie and Freddie also were busy buying newly originated performing mortgages from their seller/servicers during the first half.
According to company reports compiled by National Mortgage News, Fannie bought $253 billion in residential product during the first half. Freddie bought $179 billion.