Applications are being taken from investors who are looking to bid on severely distressed government-insured mortgages.
The sale of 9,000 distressed mortgages that are insured by the Federal Housing Administration is scheduled for September, an announcement Wednesday said. The number was expanded from an initial estimated quarterly sales rate of 5,000.
Around 3,500 of the loans are secured by properties in the hard-hit metropolitan statistical areas of Chicago; Newark, N.J.; Phoenix; and Tampa, Fla.
Florida is considered a swing state for the upcoming presidential election.
The loans sales are part of the Distressed Asset Stabilization Program, which was announced last month by the Department of Housing and Urban Development an expansion of a pilot program launched in 2010 that has so far yielded the sale of 2,100 distressed FHA loans.
After all steps in the FHA loss mitigation process have been exhausted, servicers on loans that are at least six months past due and in the foreclosure process submit claims to FHA. After the claim is processed, the investors acquire the uninsured assets.
Applications are being accepted from qualified entities interested in purchasing the pools. Qualified investors must have experience in asset management and property management. They also need to exhibit a proven track record in converting distressed mortgages to re-performing or achieving an affordable alternative to foreclosure. HUD is placing emphasis on experience in the metropolitan where the loans are located.
Loans are sold at market prices that are generally less than the remaining principal balance, and investors are required to explore affordable mortgage solutions including loan modifications and short sales or achieve a favorable resolution — which is made easier given the likely discounted purchase price. Foreclosures are delayed at least six months while the new investor works on an affordable alternative.
No more than half of the loans in the four designated hard-hit markets can be sold as real-estate-owned properties.
“These markets were chosen because of the high concentration of FHA loans in the pipeline for foreclosure and because each allows us to test this strategy under a variety of market conditions,” Federal Housing Commissioner Carol Galante said in the statement. “Further, in some of these communities, state and local leaders are already acquiring these loans and using tools like the Neighborhood Stabilization Program and the Hardest Hit Fund to offer workable solutions for homeowners and communities.”
HUD says that the program is part of a broader Obama administration strategy to encourage public-private partnerships to stabilize neighborhoods and home values in critical markets.
HUD Secretary Shaun Donovan acknowledged in the statement that the U.S. housing market is experiencing momentum not seen since before the crisis, though some metropolitan areas are still struggling.
Related:
Distressed FHA Loan Sale Program Enhanced
Enhancements to a distressed note sale program launched two years ago by the Department of Housing and Urban Development is expected to reduce the nation’s shadow inventory and benefit thousands of delinquent borrowers.
