U.S. banks — especially smaller regional banks — have a lot of non-performing loans on their books. Loans are considered non-performing once 90+ days past due. But the U.S. government — one of the biggest players in the residential real estate market — has a lot of non-performing loans too.
The U.S. Department of Housing and Urban Development (HUD) will sell $1.7 billion portfolio of non-performing Federal Housing Administration (FHA) loans in September as one of the largest deals of its kind, ushering in the most significant pickup in supply of the distressed debt since the beginning of the 2008 financial crisis, according to DebtX, the loan sale adviser retained by the federal government to orchestrate the sale. The federal government is trying to reduce losses from mounting foreclosures.
On Sept. 12, sealed bids will be accepted on 13 pools of non-performing loans in some of the hardest-hit housing markets, including Chicago, Newark, N.J., Phoenix and Tampa. Buyers expected to bid on the distressed debt include Santa Ana, Calif.-based Carrington Capital Management, Fortress Investment Group (FIG), PennyMac Mortgage Investment Trust (PMT) and Selene Finance, a firm controlled by former Salomon Brothers bond pioneer Lewis Ranieri.
HUD created its Distressed Asset Stabilization Program in 2010 to safeguard the FHA’s insurance fund while helping seriously delinquent borrowers avoid foreclosure. Under the program, non-performing FHA loans are sold for less than the borrower owes, which gives investors the flexibility to reduce the principal or modify the loan’s terms. Investors who buy the distressed debt have to wait six months before proceeding with a foreclosure.
In July, HUD said it would increase its bulk sales from 5,000 to 9,000 each quarter. So far, HUD has sold just 2,100 non-performing FHA loans since the program was launched in 2010.
“The housing market has momentum not seen since before the crisis,” said HUD Secretary Shaun Donovan in a prepared statement. “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. As one step towards avoiding unnecessary foreclosures and further stabilizing communities, we are increasing the number of loans beyond our original goals of 5,000 per quarter to approximately 9,000 this quarter.”
Bidder qualification materials and guidelines for the Distressed Asset Stabilization Program bidding process can be found at www.hud.gov/fhaloansales.
Search pre-foreclosure short sales, scheduled foreclosure auctions and bank-owned homes nationwide on RealtyTrac.
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