What Is a Reperforming Loan (RPL)?
A reperforming loan (RPL) is a mortgage that had become delinquent because the borrower fell behind on payments by at least 90 days, but returned to "performing" status again because the borrower has resumed making payments.
- A reperforming loan (RPL) is one that was once delinquent but has since returned to performing status.
- An RPL was once a nonperforming loan (NPL), but did not default since the borrower resumed payments.
- Mortgages are considered non-performing if they are more than 90 days delinquent.
- In the mortgage market, RPLs are sometimes packaged into mortgage-backed securities and sold to investors.
Understanding Reperforming Loans (RPLs)
Although a borrower has begun to make loan payments again, the missed payments may not necessarily have been paid. Often, the borrower of a reperforming loan has filed for bankruptcy and has continued making payments as a result of the bankruptcy agreement. In some cases, borrowers are able to become current on their mortgages through a loan modification program sponsored by the government.
Alternatively, a lender may agree to a loan modification to avoid potential foreclosure. Borrowers whose loans are classified as reperforming will have fewer refinancing options because of their past delinquencies.
A borrower who has a reperforming loan will have fewer options for refinancing because of their past delinquency.
How Mortgage Investors View Reperforming Loans
For mortgage investors, reperforming loans are considered risky—much like subprime loans. They fall into a category known as "scratch-and-dent" loans. Rating agencies look at a borrower's repayment patterns and the lender's ability to manage the loan in determining investment risk for reperforming loans.
That stands in contrast to a nonperforming loan, which is a loan for which the borrower has not made payments for over 90 days and has not resumed repayment of the loan. RPLs have higher odds of being repaid than NPLs.
Packaging and Selling Reperforming Loans
Fannie Mae (officially, the Federal National Mortgage Association, or FNMA), the government-sponsored enterprise (GSE) that helps make mortgages and rental housing affordable for millions of Americans, has been carrying billions of dollars worth of delinquent mortgages since the housing crisis. With the recovery of the economy many of these loans are performing again—that is, payments on the mortgages have become current with or without the assistance of modification of loan terms.
To get these mortgages off its books Fannie Mae packages and markets the reperforming loans to investors, usually through a money center bank.
Example of Reperforming Loans
In February of 2022, Fannie Mae concluded its twenty-fourth such sale of a package of reperforming loans, consisting of 7,970 mortgages totaling $1.3 billion in unpaid principal balances, with the help of Citigroup as marketer. The winning bidders were Pacific Investment Management Company LLC (PIMCO) for Pools 1 and 2 and MCLP Asset Company, Inc. (Goldman Sachs) for Pool 3, each awarded individually.
The terms of the reperforming loan sale are designed to help protect home-owning borrowers in that buyers are required to offer loss mitigation options that are sustainable to a borrower who might re-default within five years after the closing of the reperforming loan sale. Buyers are also required to report on loss mitigation outcomes.
What Does It Mean That a Mortgage is Reperforming?
Reperforming loans are loans that have been or are currently delinquent but have since started to see repayment (they "reperformed") for a period of time.
What Happens to Reperforming Loans That Are Sold to Investors?
All purchasers of reperforming loans from Fannie Mae auctions are required to honor any approved or in-process loss mitigation efforts at the time of sale, including forbearance arrangements and loan modifications. In addition, purchasers must offer delinquent borrowers a waterfall of loss mitigation options, including loan modifications, which may include principal forgiveness, prior to initiating foreclosure on any loan.
Is a Debtor Who Catches Up Just Slightly on Delinquent Payment NPL or RPL?
If a debtor resumes payments again on an NPL, it becomes a reperforming loan (RPL), even if the debtor has not caught up on all of the missed payments.