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.”

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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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  • This is typical for government programs in trouble.  The program provider cannot take the heat so they sell off assets at auction to sophisticated buyers who generally make a profit off of such purchases.  So if the purchasers are making profit and HUD is cutting off losses, this is a win win, right?  Absolutely not.

    Unless the purchasers are flipping their acquisitions at a profit, the profit earned by the purchasers should have been earned by the seller.  So who loses in such transactions?  The American taxpayer.

    It reminds one of TARP.  Banks who did not need or want the loans were forced to take them.  So the borrowers were allowed to earn income on essentially no cost loans to the lenders; however, at the same time the government was borrowing the money from others such as China and incurring costs at the expense of guess who?  Once again the American taxpayer.

    Ms. Galante can paint the situation anyway she wants but economics are economics and she is doing little more than making up stories to avoid the hard fact that FHA is in trouble, bad trouble and is looking for ways to avoid further criticism.  This is government waste at its worst. 

  • Obviously, there will be no buyers unless there is a profit to be made.  Unfortunate that profit will go to private enterprise rather than to support the FHA.

  • HUD’s budget wasn’t reduced by very much, but the housing and economic
    downturns have led to an increase in the number of people who can’t
    afford fair market housing prices or rents.

     

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