DS News has often covered the Fannie Mae Community Impact Pool (CIP) offerings, but recently DS News sat down with Scott Fergus, CEO of National Community Capital (a subsidiary of New Jersey Community Capital, winner of four out of five CIP offerings), to discuss the reasoning behind their purchases and the change in the market that facilitated them.
Fergus is the CEO of National Community Capital LLC (NCC). Fergus is responsible for managing the due diligence and pricing of NPL loans pools; the NCC ReStart Loan Modification Program; and all investor and servicer partnerships.
How did National Community Capital get involved in bidding and purchasing non-performing loan (NPL) pools?
National Community Capital is a non-profit organization, and we are a subsidiary of New Jersey Community Capital. New Jersey Community Capital is roughly a 27-year-old community development financial institution in New Jersey. We created NCC in 2012 for the express purpose of bidding on non-performing loans and managing non-performing loans in an attempt to stop the consistent declines of values in the neighborhoods in which we were doing business due to the foreclosure crisis. NJCC created another sub-subsidiary before NCC, who purchased REOs. They realized that the impact of the foreclosure crisis needed to be addressed a little differently.
By that point, a property was vacant, so we began actively bidding on pools of NPL assets starting in 2012. We won our first HUD pools in New Jersey and in Florida in 2012 and bid on a few other pools on the way subsequent to that including engaging and successfully closing on a direct sale of loans with HUD that were all in the Hurricane Sandy affected markets in New Jersey.
From that point on, we've been bidding pretty actively in Florida over the course of the last year and have successfully bid and won in a series of either EXPO pools with Freddie Mac or CIP pools with Fannie Mae. Our purpose for bidding in these pools is a long-standing mission to try to prevent foreclosures and to stabilize values in communities in which we have been approved by our board and is active in our business model, not only in New Jersey but in Florida.
What outcomes has National Community Capital experienced after purchasing these pools?
We measure our outcomes in some broad terms, which are mostly consistent also with how the sellers of the loans (such as Fannie or Freddie) view the outcomes. We view one in particular on a very broad base: foreclosure prevention. That includes loan modifications, short sells, deed in lieu, or cash for keys; anything that will stop a foreclosure from occurring and allow a homeowner a more orderly transition from their house or more stable loan terms that they can afford so that they can stay in their house. The other camp is when the property moves toward foreclosure. Then for many of our pools, we are taking ownership of the REOs so that we can rehab them and either keep them as an affordable rental or sell them to owner occupants.
Within the foreclosure prevention camp, as I mentioned there are three broad options: loan modifications, short sells, and deed in lieu. In the market in general, what we see both from the SHFA statistics as well as from HUD statistics is that most purchasers on NPOs are modifying somewhere in the ballpark of 6-8 percent of their loans in a loan pool. We, to this point, have been successful in modifying approximately 20 percent of the loans in our pool. We're roughly about 3 times better than most of the competitors or most of the other NPO purchasers in the business. We would like to do more, but we feel very good about the numbers that we're reaching, considering that of all of the loans that we buy, anywhere from 45-55 percent of a loan pool that we purchase are really only owner-occupied loans.
In our view, and I think for many, if you don't have an owner in the house because the borrowers have already vacated the house, it's pretty tough to modify a loan with somebody who's no longer living there. Considering the fact that we have about 45-55 percent of the loan pools that are owner-occupied, we're really modifying about half, or about 50 percent, of the loans that are owner-occupied in our pool. We feel that is a very positive outcome.
As far as the other ones, between short sells and deed in lieu, we're having roughly 10-15 percent of our pools with those alternative dispositions that prevent foreclosures. In total, we are having somewhere around 35 percent, give or take (some pools are a little higher) in which we are able to prevent foreclosure. We think that's really important and a good outcome for a couple of reasons. One is that Fannie and Freddie are actually selling these loans, because it's their view that the only alternative or the only disposition they would have with these loans is an REO or a foreclosure. The fact that we're able to take give or take 35 percent of a loan pool and prevent a foreclosure, is what we think of as a significant number. That's one of our main reasons for wanting to purchase NPLs, to attempt to prevent foreclosures.
For the other portions of the pools, we are actively involved with our partners. We have capital partners that are involved with us in trying to purchase the REOs out of the fund to rehab them and either sell them to owner occupants (which we think would bring good community stabilization to that neighborhood) or buy it, fix it up, and rent it. We believe that also is another community-stabilizing disposition. In some of our past pools, we have purchased nearly half of the REOs, so that when you look at an entire pool, we will have either prevented foreclosure or purchased the REO and stabilized the community to the tune of about almost 60 percent of the entire pool of assets.
What is National Community Capital's plan for purchasing NPL pools in the future?
In the states that we're active in, we believe that we are going to continue to be buyers and attempt to bid in every one of the options that Fannie, Freddie, and others would do. Why we're so interested in CIP pools instead of in other types of pools that they offer, is that a CIP pool has a group of non-performing loans in a very dense geographic area, whether it's Miami, Tampa, New York, or New Jersey, they're areas that we believe because of the geographic density of the NPLs, we can actually make an impact in the neighborhoods.
As long as Fannie continues to offer CIP pools, we will continue to be an active bidder in them. We know that there is still a pretty good runway since Fannie and Freddie have quite a few non-performing loans in their portfolio with a good number of them in the states that we work in such as Florida and New Jersey. At this point, we don't see an end to our being an active bidder in those pools.