The Department of Housing and Urban Development is selling more notes under its Distressed Asset Stabilization Program in
The offering, as in previous note sales of this type, will be conducted through two auctions. Approximately 15,000 notes are slated to sell through national pools on June 26 and about notes are slated to sell July 10 through so-called Neighborhood Stabilization Outcome pools.
The NSO pools will offer qualified bidders notes located in the following areas: Southern California, Chicago, southern Ohio (including Cincinnati, Columbus and Dayton) and the entire state of North Carolina.
HUD expects to sell more than 40,000 distressed loans this year through quarterly sales that reduce FHA’s total claims costs and increase recovery on losses to FHA’s Mutual Mortgage Insurance fund.
Under the stabilization program, severely delinquent FHA-insured loans are sold competitively at a market-determined price generally below the outstanding principal balance. Once the loan is purchased, foreclosure is delayed for a minimum of six additional months, during which time the new servicer can work with the borrower to find an affordable solution to avoid foreclosure. The loans are purchased at market rate, which is generally below the outstanding principal balance, giving the investor the incentive to take additional steps to help the borrower avoid foreclosure, including modifications that may include reduced principal balances.
NSO pools, as an additional safeguard in distressed communities, require that no more than 50% of the loans within a purchased pool be marketed as real estate owned properties and—if the servicer and borrower are unable to avoid taking the loan through foreclosure—that the servicer achieve some other neighborhood stabilizing outcome, which may include holding the property for rental for at least three years.
