The U.S. Department of Housing and Urban Development (HUD) on Tuesday announced that it would be holding a competitive bid HUD-held vacant note sale on June 8, made up entirely of properties that were secured by Home Equity Conversion Mortgage (HECM) loans in which there was no heir or non-borrowing spouse (NBS). This is according to an announcement issued by the Department on Tuesday morning.
This sale is being made in an effort to fulfill promises of the Joe Biden administration in relation to the generally limited housing supply across the country, according to the announcement. HUD describes this sale as the first-ever HUD-held single-family note sale exclusively for mission-driven non-profits and units of state and local government.
This is the second such sale sourced from former reverse mortgage properties the government has pursued in the past six months.
The reverse mortgage note sale
In September of 2021, the White House described the president’s commitment to using “every tool available in government to produce more affordable housing supply as quickly as possible, and to make supply available to families in need of affordable, quality housing – rather than to large investors,” the White House announcement in September said.
The sales based on properties that were previously secured by a reverse mortgage will play a big role in the White House’s attempt to make good on those promises, the new announcement explained.
“Consistent with the Biden-Harris Administration’s September 1, 2021, announcement that more HUD-owned properties should be returned to future owner-occupancy, participation in this sale will be limited to eligible, mission-driven non-profit organizations and units of state and local government – the first competitive bid sale exclusively for these entities,” HUD said.
The sale also performs the task of transferring properties currently owned and overseen by HUD back into the housing market, which has faced supply constraints for the past several years. This is according to Lopa Kolluri, principal deputy assistant secretary of housing at FHA.
“This sale reinforces our dedication to expanding the opportunities for non-profits and units of state and local government to purchase HUD-held assets that can be revitalized and returned to the housing market at a time when inventory is extremely low,” said Kolluri. “We have structured this sale for exclusive participation by those organizations who share our mission of expanding affordable rental and homeownership opportunities for underserved communities.”
Expanding on the previous sale
A couple of weeks after the White House made its initial housing announcement regarding using the tools available to the government, HUD also announced that it would be holding a competitive bid HUD-held vacant note sale on November 10 that was also made up entirely of properties that had been secured by HECMs. That sale ultimately took place in December of 2021, and this new sale is meant to follow up on the progress of that prior sale.
“The sale further expands on HUD’s previous work through its December 2021 vacant property note sale (HVLS 2022-1) where 50% of the mortgage notes in multi-loan pools were reserved for priority bidding by non-profit organizations and units of state and local government,” the announcement read. “23 mission-driven non-profit organizations and joint ventures successfully participated in, and 11 were awarded pools in, that sale. Collectively, these entities successfully won bids on 814 mortgage notes – the entire volume of notes eligible for priority bidding.”
The sale taking place this June seeks to “increase affordable housing supply, expand opportunities for homeownership and rental housing, and revitalize communities through encouraging the disposition of these notes in a manner that achieves mission outcomes,” HUD said.
It will aim to accomplish this in two ways: by selling properties to “low- to moderate-income homebuyers at a price affordable to households earning less than 120% of the area median family income;” and by leasing properties “at rents affordable to households earning less than or equal to 80%” of the same income metric.
To encourage more non-profit organizations and state and local governments to participate in this and future sales, HUD will host a virtual training conference for such organizations on April 27, which requires registration.
HUD and White House priorities
In its September announcement, the White House described ways in which the current housing market is operating and certain difficulties which may impede homeownership for some Americans.
“As supply constraints have intensified, large investors have stepped up their real estate purchases, including of single-family homes in urban and suburban areas,” the White House said in September. “One out of every six homes purchased in the second quarter of 2021 was acquired by investors, and reports indicate that in some markets, that number is one in four. Within investor purchases, typically more than 35% of purchases are made by investors that own more than ten properties.”
Large investor purchases of single-family homes and conversion into rental properties transitions neighborhoods to primarily renters instead of homeowners, driving up prices for lower-cost homes and making it more difficult for aspiring homebuyers to enter into homeownership, the White House explained.
“At the same, these purchases are unlikely to meaningfully boost supply in the lower-cost portions of the rental market, as investors charge more for rent to recoup higher purchase costs,” it said.
Find more information on the upcoming sale at HUD’s Asset Loan Sales Information page.