Partnership Formed to Acquire Fannie Mae Nonperforming Loans

NCST recently joined two other major nonprofit organizations – New Jersey Community Capital (NJCC) and Hogar Hispano, Inc – in a formal partnership created to purchase nonperforming loans from Fannie Mae. Two weeks ago, we closed on a pool of nonperforming loans auctioned by Fannie Mae through their Community Impact Pool auction. Our goal with these notes is to help as many homeowners as possible avoid foreclosure, or in situations where foreclosure is unavoidable, to prioritize selling REO properties to mission-based organizations engaged in neighborhood stabilization efforts.

We formed this partnership for two reasons. First, we believe that generally speaking, communities will be better off if distressed loans in their neighborhoods are owned and managed by mission-oriented entities with a commitment to homeowner success, blight prevention, and community development. Our three organizations have complementary strengths, covering different geographies and bringing expertise in optimizing loss mitigation, properly managing vacant properties, and disposing of REO responsibly.

Second, we worked with Fannie Mae to create a customized pool that includes notes in localities where the locality would likely be involved in working with NPLs, but where the numbers are not large enough for Fannie to create a locality-specific pool. We describe this group of notes as an “aggregation pool” of approximately 500 nonperforming loans from nine states.

While Fannie Mae in part created their Community Impact Pools to be sized for potential nonprofit purchase, nonprofits had been outbid in recent auctions by for-profit investors. For that reason, Fannie Mae added a new feature to the bidding process on this pool, a “last look” provision. For any nonprofit bidder whose initial bid exceeded the Fannie Mae reserve price (the minimum acceptable bid calculated by Fannie Mae), that nonprofit bidder would have a last chance to outbid a for-profit investor if they were willing to pay at least 25 basis points more. In this instance, our partnership was initially outbid by a for-profit investor, and we exercised the “last look” option to win the pool.

An interesting part of our partnership is the collaborative structure of the asset management functions. Asset management staff members from Hogar and NCST joined NJCC staff for group training on loss mitigation and other asset management functions. This combined staff will work as one unit from a single operational handbook and managed by NJCC. It is an exciting effort to maximize the strengths of the staff from the three different organizations while ensuring consistency through a single point of management.

If this partnership collaborates well and is able to achieve positive outcomes for the notes in the pool, we hope to consider how to expand the use of this partnership or other similar ones in the future.

Rob Grossinger serves as President of NCST.