The sale of $16.7 billion in nonperforming loans by the Department of Housing and Urban Development Department helped the owners of about 16,700 homes avoid foreclosure, the agency said.
Almost half of the 79,029 loans for which HUD has received reports were resolved as of Feb. 6, meaning they are no longer considered nonperforming after having gone through foreclosure or another outcome, the department said in a report released Friday. About 44% of resolutions resulted in the prevention of home seizures, and 16% of resolved loans were reperforming, with borrowers making timely payments.
The program "is meeting its intended goal of minimizing losses" to the mortgage-insurance fund, HUD said in the report. "Without the note-sale program, all of these loans might be foreclosed upon."
HUD started auctioning groups of delinquent mortgages in 2010 as increasing foreclosures led to losses in the Federal Housing Administration's mortgage-insurance fund. Friday's report is the second to assess the results of the loan sales, following an initial report last August. The sales, aimed at reducing taxpayer losses, have garnered interest from Wall Street firms competing to buying housing debt after a rebound in real estate prices.
A total of 98,007 loans have sold since the program began in 2010, with $13 billion of debt in national pools and $3.7 billion in local portfolios, HUD said on Friday.
Climbing home values have prompted bidders for delinquent loans to raise their offers. Increased interest in the debt has also spurred mortgage company Freddie Mac and lenders such as Bank of America Corp. and Citigroup Inc. to accelerate their sales of soured debt this year.
The biggest buyers of HUD's national loan pools have been Lone Star Funds, founded by billionaire John Grayken; Bayview Asset Management, a Coral Gables, Fla.-based company backed by Blackstone Group; and Selene Finance, founded by mortgage-bond pioneer Lew Ranieri. The largest buyers of local pools, with stricter requirements to meet goals that help stabilize neighborhoods, have been Bayview, Los Angeles-based investment company Oaktree Capital Management and Corona Asset Management, a Redondo Beach, Calif.-based investment group.
“We’ll continue to bid,” Scott Shultz, managing director of 25 Capital Partners, a Charlotte, N.C.-based firm that has bought about $1 billion of nonperforming loans since 2013, said in a telephone interview. "For us, the best outcome is to get the borrower to reperform and get back on their feet."
As of December, about 38% of the borrowers in a pool of 641 Chicago loans that 25 Capital Partners purchased in 2013 were performing after modifications, Shultz said.
Friday's HUD report leaves important questions unanswered about the auction program's impact on communities and the performance of investors who purchased most of the debt, said Julia Gordon, an analyst with the Center for American Progress in Washington.
"To improve the program's impact on families and communities, HUD should ensure greater involvement of community-based nonprofits in the sales, require buyers to prioritize home-retention solutions over other foreclosure-prevention alternatives, and track loan outcomes even if the loan is sold to another investor," Gordon said in an email.
