Mark Zandi is the Chief Economist with Moody’s Analytics, where he directs economic research. His broad research interests encompass macroeconomics, financial markets and public policy. His recent research has focused on mortgage finance reform and the determinants of mortgage foreclosure and personal bankruptcy. Zandi frequently testifies before Congress on topics including the economic outlook, the nation’s daunting fiscal challenges, the merits of fiscal stimulus, financial regulatory reform, and foreclosure mitigation.

By Brian Honea

Royal Bank of Scotland (RBS) may have to pay as much as $13 billion in a mortgage-backed securities lawsuit filed by the Federal Housing Finance Agency (FHFA), according to multiple media reports.

FHFA made a filing in the U.S. District Court in Connecticut in late June seeking $13 billion in damages, according to a report from Bloomberg. RBS was one of 18 lenders sued by the FHFA in 2011 to recoup U.S. taxpayer costs following the government’s $187.5 billion bailout of Fannie Mae and Freddie Mac in 2008.

The lawsuit against RBS in the Connecticut court involved the selling of about $32 billion worth of faulty mortgage-backed securities to Fannie Mae and Freddie Mac before the crisis. The bank had set aside about $3 billion for a possible settlement but reports surfaced that the FHFA might ask as much as $7.7 billion. The case should go to trial sometime in 2016 if a settlement is not reached. Analysts from Bloomberg Intelligence predict that the two parties will reach a settlement for between $1.8 billion and $4.5 billion before it goes to trial. The $13 billion FHFA asked for in the filing exceeds all previous estimates.

Out of the 18 lenders the FHFA sued, 16 of them settled for a combined total of about $17 billion. Nomura Holdings took FHFA to trial in March for a case in which RBS was also a defendant. In the two-month long bench trial, Judge Denise Cote in the U.S. District Court in the Southern District of New York found Nomura liable for deceiving Fannie Mae and Freddie Mac in the sale of $2 billion worth of mortgage-backed securities to the GSEs prior to the financial crisis of 2008. FHFA was seeking $1.1 billion in damages in that case; the judge awarded the agency $806 million. The bank has appealed the verdict.

In June 2014, RBS agreed to pay $99.5 million to settle a separate FHFA suit claiming that the bank sold more than $2 billion worth of faulty mortgage-backed securities to Fannie Mae and Freddie Mac between 2005 and 2007, the years of the “housing bubble” in the U.S.

By Brian Honea

Freddie Mac‘s total mortgage portfolio expanded at an annualized rate of 2.8 percent in June, marking the fifth consecutive month and the 10th time in the last 12 months the portfolio has grown, according to Freddie Mac’s June 2015 Monthly Volume Summary released on Wednesday.

The serious delinquency rate on Freddie Mac-backed single-family residential mortgage loans fell by another 5 basis points from May to June, down to 1.53 percent–virtually the same as the 1.52 percent serious delinquency rate reported for Freddie Mac-guaranteed loans in November 2008 at the start of the financial crisis. Freddie Mac’s serious delinquency rate was less than half of the nationwide rate reported by CoreLogic for May, which was 3.5 percent.

The number of homeowners who received permanent loan modifications totaled 4,895 for June, a slight increase from 5,490 in May. With 30,312 modifications for the first half of 2015, Freddie Mac is averaging 5,052 modifications per month. This figure represented a decline of about 500 mods per month from 2014’s monthly average of 5,596. Freddie Mac tweeted on Friday, “We helped nearly 4,900 families avoid foreclosure last month and over 30,000 in the first half of 2015.”

The expansion of Freddie Mac’s portfolio represented an increase of about $4.51 billion, up to nearly $1.923 trillion. It was the portfolio’s largest expansion since December 2014, when it grew by $7.1 billion at an annualized rate of 4.5 percent. The 2.8 percent expansion rate is the second-highest during the last 12 months, second only to December’s 4.5 percent. At the beginning of that 12-month period, in July of 2014, the portfolio’s value was $1.895 trillion.

Though the portfolio has seen expansion in 10 of the last 12 months, June was only the 17th time in the last 66 months that the portfolio has grown dating back to January 2010.

“Driven by low mortgage rates and surging home sales, conventional mortgage activity is up substantially from one year ago,” Freddie Mac Chief Deputy Economist Len Kiefer said. “According to our latest estimates, conventional mortgage origination volume is up $139 Billion (+30 percent) in the first half of 2015 compared to the first half of 2014. We expect interest rates to rise gradually and refinance volume to slow substantially in the second half of 2015, more than offsetting increased purchase mortgage activity. As a whole, we expect mortgage origination volume in 2015 to be up $100 billion (8 percent) compared to 2014.”

Single-family refinance loan purchase and guarantee volume totaled $20.3 billion in June, up slightly from $20.1 billion in May. The percentage of single-family refinance loan purchase and guarantee volume that comprised the total single-family mortgage portfolio fell from 61 percent in May to 56 percent in June. The percentage of Freddie Mac’s total single-family refinance volume was 9 percent in June, down from 10 percent in May.

The aggregate unpaid principal balance (UPB) of the Freddie Mac’s mortgage-related investments portfolio declined by about $7 billion from May to June after declining about $9.8 billion from April to May. Freddie Mac’s mortgage-related securities and other guarantee commitments saw an annualized rate increase of about 5.3 percent in June.

By Brian Honea

As they promised earlier this year, Fannie Mae andFreddie Mac have intensified their efforts in the last few months to rid their single-family residential mortgage portfolios of deeply delinquent, non-performing loans (NPLs).

On Thursday, Freddie Mac announced it ismarketing a bundle of NPLs with $1.2 billion in aggregate unpaid principal balance, the largest NPL sale to date. It is Freddie Mac’s sixth NPL sale of the year and the seventh overall; the first occurred last year in July. Including yesterday’s NPL transaction, Freddie Mac has offered nearly $4 billion worth of NPL sales over the last 13 months.

Freddie Mac reported on its blog on Friday that the mission of its NPL sales program is four-fold. According to Freddie Mac, the purposes of the program are to:

Help reduce less liquid assets via economically sensible transactions;
Encourage broad investor participation;
Consider borrower outcomes, neighborhood stability, and the market; and
Provide a well-controlled and transparent process.

“We continue to work to broaden participation in our auctions by marketing our transactions to a extensive investor group–including community-based organizations, nonprofits and women- and minority-owned businesses,” Freddie Mac said on the blog.

Meanwhile, Fannie Mae closed its first-ever bulk NPL sale in May. That transaction included approximately 3,000 deeply delinquent residential single-family mortgage loans totaling about $762 million in UPB. In mid-July, Fannie Mae began marketing another bulk NPL sale with nearly 4,000 loans and $788 million in UPB.

Private investors as well as non-profits and minority- and women-owned businesses are encouraged to bid in each auction. Bidders must be pre-approved to participate in the NPL auctions; they must meet theguidelines set by FHFA in March. Among other requirements, bidders must identify servicing partners at the time of qualification and complete a questionnaire to demonstrate a record of successful loan resolution through foreclosure alternatives. Also, servicers who purchase non-performing Agency loans must apply a “waterfall of resolution tactics” before resorting to foreclosure.

“The goal of our non-performing loan sales is to be able to offer borrowers additional options to avoid foreclosure, while also reducing the number of seriously delinquent loans in Fannie Mae’s portfolio,” said Joy Cianci, Fannie Mae’s SVP for Credit Portfolio Management. “We hope to inspire opportunities for non-profit organizations, smaller investors, minority- and women-owned businesses and community groups to work together to help more borrowers avoid foreclosure and collaborate on neighborhood stabilization efforts.

With the conservatorship approaching seven years old in September, the ultimate goal is to lighten the burden for taxpayers.

“FHFA‘s expectation is that the sale of seriously delinquent loans through non-performing loan sales will result in more favorable outcomes for borrowers, while also reducing losses to the Enterprises, and, therefore, to taxpayers,” the GSEs’ conservator, FHFA, wrote in its 2014 Report to Congress released in June.

By Brian Honea

Freddie Mac announced on Wednesday its largest sale ever of deeply delinquent, non-performing loans from its mortgage investment portfolio, consisting of 5,208 loans serviced by Ocwen Financial with an unpaid principal balance (UPB) of approximately $1.1 billion.

The sale was completed five days before the announcement (on September 11) and the transaction is expected to settle in October 2015. The sale is part of Freddie Mac’s Standard Pool Offerings (SPOs).

The loans offered were delinquent by an average of three and a half years, meaning that the borrowers were likely previously evaluated for loss mitigation options or in some stage of loss mitigation or foreclosure, according to Freddie Mac. Approximately 33 percent of the aggregate pool balance consisted of loans that were modified and later became delinquent. The aggregate pool has a loan-to-value ratio of approximately 91.1 based on broker price opinion and is geographically diverse, according to Freddie Mac.

The loans in this sale were offered in five different pools. The winners were as follows:

9-16 Freddie Mac Graph

Freddie Mac began marketing the transaction through its advisors on August 13 to potential bidders. As always, Freddie Mac encouraged participation from minority- and women-owned businesses (MWOBs), non-profits, neighborhood advocacy funds, and private investors in the bidding for this NPL sale. Advisors for the transaction were Credit Suisse, Wells Fargo Securities and First Financial Network, a woman-owned business.

The FHFA, Freddie Mac’s conservator, requires all bidders to comply with the Agency’s enhanced requirements for NPL sales announced on March 2, which include approval by and good standing with government housing agencies (Freddie Mac, Fannie Mae, Ginnie Mae, and the Federal Housing Administration); evaluating borrowers for eligibility in the government’s Home Affordable Modification Program (HAMP); and applying a “waterfall” of resolution tactics before resorting to foreclosure.

Freddie Mac’s last SPO sale of non-performing loans, which was completed on July 28, was comprised of 3,577 deeply delinquent loans with $591 million in UPB.

By Brian Honea Urban Institute reported earlier this month that the mortgage-related investment portfolios for bothFannie Mae and Freddie Mac continue to contract and were both well below their 2015 portfolio cap as of the end of November. Whereas Freddie Mac’s mortgage-related investment portfolio took an upward turn in December, however, Fannie Mae’s mortgage portfolio continued contracting at a substantial rate, according to Fannie Mae’s December 2015 Monthly Volume Summary. Fannie Mae’s gross mortgage portfolio contracted at

By Brian Honea Urban Institute reported earlier this month that the mortgage-related investment portfolios for bothFannie Mae and Freddie Mac continue to contract and were both well below their 2015 portfolio cap as of the end of November. Whereas Freddie Mac’s mortgage-related investment portfolio took an upward turn in December, however, Fannie Mae’s mortgage portfolio continued contracting at a substantial rate, according to Fannie Mae’s December 2015 Monthly Volume Summary. Fannie Mae’s gross mortgage portfolio contracted at