Although the economy is improving, there are still many severely delinquent mortgage loans. HUD plans to sell 20,000 distressed loans that are insured by the FHA in an effort to deepen the inventory and bring relief to areas hit hard by foreclosure. Its Distressed Asset Stabilization Program (DASP) will help with the sale of these loans and help to stabilize the nation's communities.
HUD has sold delinquent loans before, and previously did so by conducting note sales. There are two auctions planned, one for June 26th that will handle the sale of 15,000 notes through "national pools" and another auction on July 10th that will offer 5,000 notes through Neighborhood Stabilization Outcome (NSO) pools. The NSO pools allow qualified bidders notes located in Southern California, Chicago, Southern Ohio, and North Carolina. In addition, HUD is expanding the use of single-family loan sales by including a competitive bidding process in which loan pools are sold to the highest bidder.
“We’ve seen a tremendous response to our note sales which allow us to support particular areas of our country hard-hit by foreclosures while improving outcomes for FHA,” said FHA Commissioner Carol Galante. “These auctions allow us to continue stabilizing hard-hit housing markets and to improve FHA’s overall financial position at the same time.”
HUD expects to sell more than 40,000 distressed loans this year. These sales will help to reduce the FHA's total claims costs and increase recovery on any loses the FHA may have experienced regarding their Mutual Mortgage Insurance Fund. The severely delinquent FHA-insured loans will be sold competitively at a market-determined price. Generally, the price will be well below the outstanding principal balance. When the loan is purchased, foreclosure is delayed for six months and the new servicer has time to help the borrower find an affordable solution to avoid foreclosure.
