HUD to Sell 40,000 Loans to Boost Mortgage Insurance Fund

The U.S. Department of Housing and Urban Development (HUD) will sell at least 40,000 distressed loans over the next year in quarterly sales as a means to strengthen recovery efforts for its struggling mortgage insurance fund, the agency said Monday.

To reduce total claims cost and increase recovery on losses to the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund, HUD is accelerating the use of loan sales under its expanded Distressed Asset Stabilization Program (DASP). 

The program enables HUD to sell severely delinquent loans insured by FHA through a competitive bidding process in which loans pools are sold to the highest bidder, the results of which leaving HUD “very pleased.”

The September sales through DASP, notes HUD, yielded an additional $1 billion in economic value to FHA’s Mutual Mortgage Insurance Fund in fiscal year 2013 alone.

HUD’s September sale occurred in two parts:

The first part, conducted on September 12, consisted of 5,300 non-performing loans in six different national pools with a combined unpaid balance of $950 million. 

The second part, conducted on September 27, consisted of 4,100 loans in seven different Neighborhood Stabilization Outcome (NSO) pools, with a total of $770 million in unpaid balances. 

A new addition to DASP, these NSO pools consist of loans gathered in geographically concentrated areas, the sales terms of which promote neighborhood stability in hard-hit communities. 

For the September sales, NSO pools were in four areas: Chicago, Tampa, Phoenix and Newark, New Jersey. 

“This program accomplishes two very important objectives—it supports communities hardest hit by the housing crisis and it saves considerable money for FHA’s insurance fund,” said FHA’s Acting Commissioner Carol Galante. “The results from the September sales were strong which tells us investors of all stripes and communities are eager for this solution.”

HUD’s next scheduled sale is expected to take place during the first quarter of 2013, which HUD reports will include 10,000-15,000 loans and will target select metropolitan areas in Georgia, California, Florida and Ohio.

Written by Jason Oliva

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