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62 e loud debate over whether GSEs should be selling off nonperforming loans began on September 30. What has followed is best described as a political and socioeconomic maze: One where a few die-hard capitalists ironically sided with Senator Elizabeth Warren, (D-Mass.)—the Senator Wall Street fears the most. Adding irony upon irony, some members of Congress, who once rallied for Fannie Mae and Freddie Mac to wind down their portfolios, actually stepped forward, asking the GSEs to step back from selling off severely delinquent home loans in a bid to shrink their portfolios. So what was the catalyst for all this contradiction and confusion? e most basic answer is the process of servicing distressed debt never did run smooth—and the outcome will likely require bridge-building and sacrifice. e debate started when Senator Elizabeth Warren, D-Mass., and U.S. Rep. Mike Capuana, D-Mass, gathered with citizens and supporters at a protest in which the lawmakers criticized the government housing agencies for selling nonperforming loans off to investors. One of their main targets for criticism: the FHFA. As conservator of Fannie and Freddie, FHFA made its vision as clear as possible, when director Mel Watt said it would enhance requirements for the sale of nonperforming loans, otherwise known as NPLs, from Fannie and Freddie, with the goal of transferring risk to the private sector and reducing the enterprise portfolios. FHFA is sticking by its assertion that the agency wants what's in the best interest for borrowers – many of whom are tied to legacy loans issued before 2009. e director of FHFA, Mel Watt, noted earlier this year that the NPLs involved in the sales are considered severely delinquent – and are well over a year past due. e idea was to push them off the books, freeing up the enterprises, reducing taxpayer risk and allowing the loans to fall into the hands of specialty servicers. At the same time, FHFA released a list of servicer requirements on the grounds that they wanted foreclosure-alternative opportunities to remain open for borrowers. "FHFA expects that with these enhanced requirements, NPL sales by Freddie Mac and Fannie Mae will result in more favorable outcomes for borrowers and local communities, while also reducing losses to the enterprises and, therefore, to taxpayers," said Watt. "Under the requirements announced, servicers must consider borrowers for a range of alternatives to foreclosure." FHFA continues to support this effort despite pushback from protestors. "We established the nonperforming loan programs to accomplish two goals: One is we believe we will have a better outcome for borrowers, with more able to keep their homes, and we believe Freddie Mac and Fannie Mae will reduce the cost to taxpayers rather than holding on to them and having to handle them later on," explained Eric Stein, Special Advisor to FHFA Director Mel Watt. As for why selling the loans off will make a difference? Stein notes, "It is going to be a different servicer making an effort. Most of the borrowers have been delinquent for several years by the time the loan is sold, so a bit of a change of voice, itself, I think will be helpful." e FHFA Special Advisor added that, "Many of these servicers (tied to purchasing investors) are specialty servicers whose business C O V E R S T O R Y / K E R R I P A N C H U K TORN APART A New Investment Strategy or an Enemy to Homeownership?

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