The Federal Housing Administration began qualifying investors to bid on 9,000 delinquent loans.
Roughly 3,5000 of the mortgages underlie properties in Chicago, Phoenix, Tampa and Newark, N.J., according to details on the loan pool released Wednesday. Investors buying these loans can only push half of them through foreclosure and resell the homes as REO.
The Department of Housing and Urban Development expanded the distressed asset stabilization program in June to begin selling pools of defaulted mortgages that were heading to foreclosure. A pilot version of the program began in 2010 unloaded 2,100 nonperforming loans, which HUD anticipates could eventually grow by 10 times that amount.
HUD Secretary Shaun Donovan told reporters Wednesday roughly 9,000 FHA loans will be sold per quarter, up from an original goal of 5,000.
"The housing market has momentum not seen since before the crisis," said HUD Secretary Shaun Donovan. "But some metro areas are still under pressure and some FHA borrowers remain seriously behind on their loans and stand to lose their homes in a matter of months."
Seriously delinquent loans insured by the FHA increased to more than 713,000 in May, the first monthly uptick since the beginning of the year.
The FHA emergency insurance fund would likely have needed an unprecedented bailout from the Treasury Department were it not for a $1 billion settlement with Bank of America (BAC) over origination problems.
"FHA not only avoids the costs associated with a long foreclosure process, but also the high costs of maintaining and selling vacant properties in already distressed markets," said FHA Commissioner Carol Galante.
Galante added the FHA is working with lenders in local areas to create smaller pools of loans to sell in their areas. When a mortgage insured by the FHA goes delinquent, the government pays the claim and transfers the loan to the investor. Foreclosure, in these cases, will be delayed at least six months to give the investor a chance to catch up.