Any quarter now Fannie Mae will crank up its
Exactly how much product will be available is anyone’s guess, but the math looks like this: Fannie’s retained portfolio totals $672 billion with a (credit enhanced) delinquency rate of 7.88% which comes out to almost $53 billion.
As readers might recall, both Fannie Mae and Freddie Mac were busy bees the past few years (mostly 2011) acquiring nonperforming mortgages out of their own securities. Presumably, these “whole loans” now reside on their balance sheets.
To date, the GSEs and their regulator, the Federal Housing Finance Agency, have disseminated little in the way of public information regarding their NPL disposal strategy. But investment bankers and advisors that hope to be part of the sale process contend that the Treasury Department’s recent “rewriting” of its assistance agreement with the two might speed up the dissolution.
In short, Treasury wants the two to whittle down their mortgage holdings a bit sooner than originally planned. It stands to reason that the easy way to shrink would involve selling NPLs.
The Treasury edict, which amends the government’s preferred stock investments in the two, mandates that their portfolios be no larger than $250 billion.
One advisor I know who read the document claims it also gives each GSE the power to sell up to $250 million of assets without Treasury’s approval. (I read it, too, and I’m not so sure of the language, but I’m not a lawyer.)
But will the GSEs “fire sale” mortgage assets? Bargains might be available—but in this new era of ultra-tight regulation and oversight, Fannie and Freddie will be careful to make sure they’re not taken advantage of, which means no “easy” bargains.
One wild card here is the inspector general’s office of the Federal Housing Finance Agency. The FHFA, an amalgam of two other agencies, had been up and running for two years without an IG. But not anymore.
According to one presentation given to me, the agency’s IG office is now 122 employees strong. Chances are the IG will be taking a close look at how Fannie and Freddie sell NPLs (among other things) and how many bargains they give away.
In other words, fear of giving the store away might retard the sales effort, especially regarding NPLs. But I’m getting ahead of myself.
The first thing that the GSEs must do is to establish a sales process and hire loan sale advisors.
From what I’m told Fannie is moving closer to picking an advisor that will guide the GSE as it moves closer to actually selling something. The target date for its first auction is said to be late 2012, or early 2013. (Little information is available on Freddie’s efforts.)
A “request for proposal” or similar document was issued by Fannie to potential vendors late in the spring. Anyone receiving it was asked to sign a nondisclosure agreement about its contents.
Roughly five vendors are under consideration presently, said one consultant who has done work with Fannie. He spoke under the condition his name not be published because of the sensitivity of the matter. “Confidentially, the selection process is underway and no more vendors are under consideration. I can’t say anything more than that.”
A Fannie spokesman declined to comment for this column.
