FHA Stepping up Bulk Sales Volume

ActingrnFederal Housing Finance Agency (FHA) Commissioner Carol Galante and Housing andrnUrban Development (HUD) Secretary Shawn Donovan announced late Friday afternoonrna new bulk sale program to liquidate some of the reported 700,000 delinquent loansrnbacked by FHA insurance.  The Distressed Asset Stabilization Program is an outgrown of a pilot program thatrnallows private investors to purchase pools of mortgages headed for foreclosure.  The pilot has resulted in sales of more thanrn2,100 single family loans to date.</p

Beginning with the September 2012rnscheduled sale, FHA will increase the number of loans available for purchasernfrom approximately 1,800 each year to a quarterly rate of up to 5,000, and addrna new neighborhood stabilization pool to encourage investment in communitiesrnhardest hit by the foreclosure crisis.</p

According to an article in the Wall Street Journal published before the sale was officially announced, FHA is undertakingrnbulk sales in an effort to reduce its growing portfolio of distressed loans andrnto avoid the costly process of foreclosure, but also because its own rulesrnlimit ways in which the mortgages can be modified, leaving little room for aggressivernloan modifications like those done by Freddie Mac, Fannie Mae, and proprietaryrnlenders.  Once sold these stricturesrndisappear, the new servicer can take more drastic steps to bring the loans backrnon line.</p

Under the new program, the current servicerrncan place a loan into the bulk sale loan pool if the borrower is at least sixrnmonths delinquent on his mortgage and has exhausted all steps in the FHA lossrnmitigation process.  The servicer mustrnalso have initiated foreclosure proceedings and the borrower cannot be in bankruptcy.</p

Oncernaccepted from the servicers, the notes are sold competitively at arnmarket-determined price generally below the outstanding principal balance. Tornminimize the chance “vulture investors” will take advantage of the program, potentialrninvestors must agree to hold off foreclosure for a minimum of six months andrnwork with the borrowers to help find an affordable solution to keep them inrntheir homes. FHA also seeks to provide some protection to the market byrnrequiring purchasers to hold back from sale at least 50 percent of the homesrnbacking the loans for at least three years. </p

“The Distressed Asset StabilizationrnProgram offers a better shot for the struggling homeowner and lower losses tornthe FHA,” Galante said. “By addressing the growing back log of distressedrnmortgages, FHA is helping to mitigate the negative effects of the foreclosurernprocess as part of the Administration’s broader commitment to communityrnstabilization.” </p

“While our housing market hasrnmomentum we haven’t seen since before the crisis, there are still thousands ofrnFHA borrowers who are severely delinquent today – who have exhausted theirrnoptions and could lose their homes in a matter of months,” said HUD SecretaryrnShaun Donovan. “With this program, we will increase by as much as ten times thernnumber of loans available for purchase while making it easier for borrowers tornavoid foreclosure. Finding ways to bring these loans out of default not onlyrnhelps the borrower, but helps the entire neighborhood avoid the disinvestmentrnand decline in value that accompanies a distressed property.” </p

 “Currently, FHA’s inventory of REO propertiesrnavailable for sale is at its lowest level since FY 2009,” added Galante. “Atrnthe same time, the inventory of seriously delinquent loans is near an all timernhigh. With many neighborhoods still fighting to recover from the housingrncrisis, going upstream will allow us to help more borrowers before they gornthrough foreclosure and their homes ever come into the REO portfolio.” 

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