HUD will sell 40,000 distressed loans in 2013

By Sari R. Updated on 5/3/2013

In 2013, the U.S. Department of Housing and Urban Development (HUD) will be selling thousands of distressed loans insured by the FHA.  This will be HUD’s biggest effort to date in helping the nation’s shadow inventory and high-foreclosure areas.

This upcoming summer, HUD will sell around 20,000 distressed loans using the Distressed Asset Stabilization Program.  HUD is hoping that this will increase FHA’s Mutual Mortgage Insurance Fund recoveries from FHA loans that are non-performing. 

The HUD offerings will happen in the form of two auctions.  The June 26^th auction will center around selling 15,000 listings through “national pools” and the June 10^th auction will center around selling 5,000 listings through Neighborhood Stabilization Outcome pools.

HUD is increasing the number of single-family loan sales using a competitive bidding process by which the highest bidder is sold various loan pools.  This is inclusive of community organizations as well as nonprofits.

These distressed FHA-insured loans are sold at a competitive price as determined by the market.  These prices are usually under the current outstanding principal balance.  After the loan is purchased, the foreclosure is postponed for six months minimum.  It is during this time period that the borrower and servicer can work together to reach a solution to avoid foreclosure.

Investors are more motivated to help borrowers avoid foreclosure when they buy the loans at market rate.  In 2013, HUD believes they will sell over 40,000 distressed loans through the use of quarterly sales.