12th December 2012

FHA to sell 40,000 distressed loans

posted in Appraiser News |

U.S. Department of Housing and Urban Development will sell at least 40,000 distressed loans over the next year, generally in quarterly sales, in an effort to reduce total claims, cost and increase recovery on losses to the Federal Housing Administration Mutual Mortgage Insurance Fund.

The results of which, when considered by FHA independent actuary, should yield an estimate of an additional $1 billion in economic value to FHA’s Mutual Mortgage Insurance Fund in fiscal year 2013 alone by significantly reducing the expected severity of losses on loans sold through the program.

The FHA first hinted at the development at the HousingWire REperform conference. FHA Acting Commissioner Carol Galante told a crowd of mortgage professionals her institution will not immediately initiate an REO-to-rental program.

Instead, they intended to try to work through the loans before foreclosure.

The preliminary results of September for the first loan sales under HUD’s expanded Distressed Asset Stabilization Program took place in two parts. The first part was conducted on Sept. 12 and consisted of 5,300 non-performing loans in six different national pools, combining to an unpaid principal balance of $950 million. The second part was conducted on Sept. 27 and consisted of 4,100 loans in seven different “Neighborhood Stabilization Outcome” pools, totaling $770 million in upaid principal balance.

DASP is a part of a broad based effort to address the housing industry’s shadow inventory and to target relief to communities experiencing high foreclosure activity.

HUD is increasing the use of loans through DASP, selling distressed loans insured by the FHA through a competitive bidding process. The loans are sold to the highest bidder, which includes nonprofit and community-based organizations.

NSO loans consist of loans pools in geographically concentrated areas, accompanied by sales terms that promote stability in hard-hit communities. The four geographic areas in the September sales were Phoenix, AZ., Tampa, Fla., Chicago and Newark, NJ.

“This program accomplishes two very important objectives– it supports communities hardest hit by the housing crisis and it saves considerable money for FHA’s insurance fund,” Galante said. “The results from the September sales were strong which tells us investors of all stripes and communities are eager for this solution.”

The next scheduled sale will take place in the first quarter of 2013. The sale will include 10,000 to 15,000 loans. The targeted NSO pools will be in select metro areas in California, Florida, Georgia and Ohio.


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