Thousands More FHA Loans set for Auction Block

Approximately 20,000 severely delinquent FHA-guaranteedrnmortgage loans will be offered to investors through two Department of Housingrnand Urban Development (HUD) sponsored auctions this summer.  The sales are part of HUDs expandedrnDistressed Asset Stabilization Program designed to reduce FHA’s shadow inventory,rntarget relief to geographic areas that have been especially hard hit byrnforeclosure activity, and shore of FHA’s mortgage insurance fund.  </p

On June 26^th investors will have thernopportunity to purchase approximately 15,000 notes through “national pools”.  The second sale, on July 10 will offer loansrnfrom Neighborhood Stabilization Outcome (NSO) pools that are concentrated inrnChicago, southern Ohio, metropolitan Los Angeles, and the state of NorthrnCarolina.  Loans will be sold through arncompetitive bidding process and sold to the highest bidder.</p

As a condition of purchasing the loans the buyerrnmust agree to delay any foreclosure for a minimum of six months during which itrncan work with the borrower in an attempt to preserve homeownership.  As the loans are generally purchased belowrnthe outstanding principal balance HUD says this gives the investor an incentivernto work with the borrower such as by initiating modifications that include arnreduction of the loan’s principal balance. rn</p

The NSOrnpools have an additional safeguard for distressed communities.  The rules require that no more than 50rnpercent of the loans within a purchased pool can be marketed as real-estaternowned (REO) properties and where the servicer and borrower are unable to avoid foreclosurernthat “the servicer achieve some other neighborhood stabilizing outcome, whichrnmay include holding the property for rental for at least three years.”</p

CarolrnGalante said there has been tremendous response to the note sales. “These auctions allow us to continue stabilizing hard-hit housingrnmarkets and to improve FHA’s overall financial position at the same time,” shernsaid.</p

The previous set of two auctions, conductedrnin March, sold 16,000 plus loans similarly allocated among national pools andrnNSO pools.  The 10 national pools had anrnunpaid principal balance of $2.2 billion. rnThe five NSO pools, concentrated in Atlanta, Cleveland, southernrnCalifornia and several areas in Florida, had an unpaid balance of $635rnmillion.  </p

Servicersrncan place loans in the sale if the borrower is at least six months delinquentrnand the servicer has exhausted all steps in the FHA loss mitigation progressrnand has initiated foreclosure.</p

HUD said it expects to sell morernthan 40,000 distressed loans this year through quarterly sales.  The sales scheduled and completed will bringrnHUD close to that total

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