WASHINGTON – May 6, 2013 – For the second time this year, the U.S. Department of Housing and Urban Development (HUD) will sell thousands of severely delinquent mortgage loans insured by the Federal Housing Administration (FHA).
This summer, HUD will sell approximately 20,000 distressed loans through its expanded Distressed Asset Stabilization Program (DASP).
HUD’s offerings will be conducted through two auctions – on June 26, it will sell approximately 15,000 notes through “national pools,” and on July 10 it will offer approximately 5,000 notes through Neighborhood Stabilization Outcome (NSO) pools.
In the past, the smaller Neighborhood Stabilization pool sales included Florida properties, but this time HUD is focusing on Southern California, Chicago, southern Ohio (including Cincinnati, Columbus and Dayton) and the entire state of North Carolina.
HUD is expanding the use of single-family loan sales through a competitive bidding process in which loan pools are sold to the highest bidder, including non-profit and community-based organizations.
“These auctions allow us to continue stabilizing hard-hit housing markets and to improve FHA’s overall financial position at the same time,” says FHA Commissioner Carol Galante.
Under the loan sale program, severely delinquent FHA-insured loans are sold competitively at a market-determined price that’s generally below the outstanding principal balance. Once an investor purchases the loan, foreclosure is delayed for a minimum of six additional months.
During those six months, the investor (or servicer) can work with the borrower to find an affordable solution to avoid foreclosure. Since the investor buys the loans at market rate – which is generally below the outstanding principal balance – they’re in a position to offer the homeowner a loan modification. If the loan eventually goes to foreclosure anyway, the investor must do so, relieving HUD from the task.
HUD expects to sell more than 40,000 distressed loans this year through quarterly sales that reduce FHA’s total claims costs and increase recovery on losses.
Distressed Asset Stabilization Program
FHA’s note sales program was resumed in 2010 as a direct sale pilot program that allows qualified bidders to buy pools of risky mortgages – in many cases, HUD says, as a less expensive alternative to foreclosing and listing the homes as a real estate-owned (REO) property.
An FHA servicer can place a loan into the loan pool if the following criteria are met:
• The borrower is at least six months delinquent on their mortgage
• The servicer has exhausted all steps in the FHA loss mitigation process
• The servicer has initiated foreclosure proceedings
For more information on the HUD loan sale program, visit the department’s website.
© 2013 Florida Realtors®