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Freddie Mac NPLs; Zillow value tanks; Adios LIBOR 👋

By October 21, 2021 No Comments

Freddie Mac offloads non-performing mortgages

Freddie Mac just sold via auction 7,186 non-performing residential first lien loans (NPLs) from its mortgage-related investments portfolio. 

The loans, with a balance of approximately $1.2 billion, are currently serviced by Specialized Loan Servicing LLC, Select Portfolio Servicing, Inc., and NewRez LLC, d/b/a Shellpoint Mortgage Servicing. 

The transaction is expected to settle in December 2021. 

The sale is part of Freddie Mac’s Standard Pool Offerings (SPO®). Freddie Mac, through its advisors, began marketing the transaction on September 16, 2021 to potential bidders, including non-profits and Minority, Women, Disabled, LGBT, Veteran or Service-Disabled Veteran-Owned Businesses (MWDOBs), neighborhood advocacy organizations and private investors active in the NPL market. 

Bids for the upcoming Extended Timeline Pool Offering (EXPO), which is a smaller sized pool of loans, are due from qualified bidders by November 16, 2021.

For the SPO® offerings, the loans were offered as four separate pools of mortgage loans. The four pools consist of mortgage loans secured by geographically diverse properties. Investors had the flexibility to bid on each pool individually and/or any combination of pools.

Given the delinquency status of the loans, the borrowers have likely been evaluated previously for loss mitigation, including modification or other alternatives to foreclosure, or are in foreclosure. 

Mortgages that were previously modified and subsequently became delinquent comprise approximately 64 percent of the aggregate pool balance. Additionally, purchasers are required to honor the terms of existing loss mitigation agreements and solicit distressed borrowers for additional assistance except in limited cases and ensure all pending loss mitigation actions are completed.

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Zillow’s value is tanking, what does that mean for housing?

Back in February, Zillow’s stock was trading at an all-time high of $212. On Monday, it finished the day perilously close to its 52-week low, closing at $85.46.

The fairly steady eight-month decline comes despite a red-hot U.S. housing market. And that’s making some investors nervous. Is Zillow a canary in the residential real estate coal mine — and does its tumble forecast a drop in housing prices?

Zillow’s fall from investor grace seems to be tied to a number of factors.
Yesterday’s 10% tumble came after the company, which most people know best for its home valuations and browsing capabilities, announced it was pausing its homebuying business for at least the remainder of 2021.

iBuying, as the program was called, had a busy 2021. The business bought and sold thousand of homes, utilizing the company’s predictive pricing tool as a core component. Homeowners could type in information about their home and receive an offer in 24 hours or less.

Zillow doesn’t fully depend on the algorithm though. It uses humans to confirm things before it writes a check—and the ongoing labor shortage is why it hit pause. (Zillow will still have a flow of new houses coming in for months, as it lets owners preschedule closing dates and plans to honor any existing contracts.)

Word that iBuying was being paused made some analysts worry that Zillow had too many homes in its inventory, signaling a slowdown in the demand. Zillow reportedly bought 3,805 homes in the second quarter, more than any previous quarter.

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With Josh Pitts & Matt Hansen

Adios LIBOR, here’s what lenders need to know

The Consumer Financial Protection Bureau (CFPB) joined four other federal financial regulatory agencies and state bank and credit union regulators today in issuing a statement highlighting the risks posed by the discontinuation of LIBOR (originally an acronym for London Interbank Offered Rate). 

The CFPB is urging banks and nonbanks alike to continue their efforts to transition to alternative reference rates to mitigate consumer protection, financial, legal, and operational risks.

The financial services industry once used LIBOR as a reference interest rate for many consumer financial products including mortgage loans, reverse mortgages, home equity lines of credit, credit cards, and student loans — until it became engulfed in scandal. 

The approaching discontinuation of most LIBOR tenors in June 2023 presents financial, legal, operational, and consumer protection risks.  
Additionally, consumers may not know when the transition from LIBOR will occur or how institutions will calculate their interest rates if they do not issue required disclosures to consumers.

The CFPB is continuing work on a final rule to address the anticipated expiration of LIBOR and expects to issue it in January 2022. The FAQs pertain to compliance with existing CFPB regulations for consumer financial products and services impacted by the anticipated LIBOR discontinuation and resulting need to transition to other indices.

The CFPB is also committed to helping creditors transition affected consumers from LIBOR in a transparent and orderly manner. In October 2019, the CFPB published a blog post discussing the transition away from LIBOR to help consumers understand this market-wide change. In June, 2020, the CFPB released an updated consumer handbook on adjustable rate mortgages to help consumers better understand these products and how their payments can change over time.

Banks and nonbanks alike should have risk management processes in place to identify and mitigate risks to consumers that commensurate with the size and complexity of their exposure and third-party servicer arrangements.  

The interagency statement identifies specific actions financial institutions can consider in preparation for the elimination of LIBOR based loans. Among those actions include developing and implementing a transition plan for communicating with consumers and including fallback language that defines a fallback reference rate.

Finally, the interagency statement includes clarification on the meaning of certain key terms, factors industry should consider when selecting alternative rates, and expectations for fallback language.

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