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HUD to auction off San BernardinoÕ severely delinquent mortgages

County once considered eminent domain in previous plan to aid borrowers

For years, officials in San Bernardino County, California have been working to address the county’s overabundance of distressed homeowners. 

In 2012, the county began discussing a plan to seize underwater mortgages through eminent domain. The plan entailed using private capital to acquire current but underwater home loans, write down the principal and refinance the loans into Federal Housing Administration mortgages.

The plan was ultimately shelved because county officials were dissuaded by the potential for “unintended consequences.” At the time, Gregory Devereaux, chief executive officer of San Bernardino County, said, “It's wrong to impose that risk on the community without support from the community, and that level of support has not materialized. We don't want to do more harm than good in what we choose to do."

As part of the county’s push to help its residents, it established the Homeownership Protection Joint Powers Authority, with the cities of Fontana and Ontario. The JPA was formed to oversee the county’s efforts to assist its distressed homeowners.

Despite the end of the eminent domain plan, the JPA has continued to try to find ways to help the county’s residents. Now, the JPA has a new plan.

Later this month, the U.S. Department of Housing and Urban Development will auction off a special pool of the county’s severely delinquent mortgage loans though its Distressed Asset Stabilization Program.  

The loans will be sold at auction on June 25 as one of eight pools of loans insured by the FHA.

The DASP program is intended to support communities that were hardest hit by the foreclosure crisis. By selling off distressed mortgages, it saves the FHA money by increasing recoveries to its insurance fund and reducing the costs incurred by the FHA when it forecloses on delinquent mortgages and resells the properties.

The auction is open to non-profit and for-profit bidders that pre-qualify, but the county has entered into an agreement with Palladian General Mortgage Group, which intends to bid on the pool. Palladian is the county’s preferred bidder.

“While there’s no guarantee that Palladian will be the successful bidder, if they are, we think they will work hard to save many county homes from foreclosure and bring relief to distressed neighborhoods,” Devereaux said.

In addition to complying with homeowner protections required by HUD, Palladian has agreed to offer additional family-friendly foreclosure alternatives as part of the county’s Homeownership Protection Program to assist struggling homeowners and stabilize county neighborhoods.

The JPA selected Palladian as one of four firms designated to develop foreclosure prevention program for the county’s residents.

“Creating and offering this pool makes it possible for severely delinquent homeowners to find alternatives to merely waiting for foreclosure to happen,” said Dena Fuentes, the county’s Director of Housing and Community Development. “If the auction is successful, we hope that we can work with HUD to create additional, larger pools for future auctions so more homeowners can receive assistance.”

Regardless of whether Palladian wins the auction or not, the successful bidder will be prohibited from foreclosing on the delinquent homeowner for at least six months and must work with the homeowner to find a workable alternative to foreclosure.

The county says that it hopes that any other entities planning to bid on the San Bernardino County pool would also go “beyond the HUD requirements to help homeowners and stabilize county neighborhoods.”

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