Inventory alert: HUD announces bidding for vacant property note sale

The Department of Housing and Urban Development announced an upcoming sale of vacant loans secured by home equity conversion mortgages.

HVLS 2024-2 will be up for bid on May 7 and comprises approximately 1,265 notes with loan balances of close to $346 million. The sale consists of due and payable residential loans secured by first-lien HECMs, where borrowers and non-borrowing spouses are now deceased, the announcement from HUD's office of asset sales said. 

Nonprofits, government agencies and for-profit businesses, are all eligible to bid in the sale. HUD will also consider offers from joint ventures and other partnerships between various enterprises. 

HUD vacant loan sales, which were first introduced in 2016, emerged as a means to help increase supply through the disposition of assets. As much as 50% of an offering is sometimes prioritized for nonprofit and government organizations in hopes of providing housing, including homeownership opportunities for residents making under 120% of area median income. Unlike prior HVLS auctions, no mention was made of designated allotment for specific buyer segments in the latest announcement.

Through the first half of 2023, nonprofits have purchased 28% of all HVLS loans for sale since the program's launch, HUD said in a report late last year. Settled loan count totaled 10,280. 

An approximate 52% share of loans sold through HVLS come from 10 states. Florida headed the list with 13%, with  Texas in second place at 7%. California, Illinois and New York all followed at 5% each.   

The latest sale comes as home affordability and inventory issues rise in the public consciousness, after President Biden made the country's housing situation a key talking point in his recent State of the Union address. The creation of more units has been a focus in the Biden Administration's housing action plan, first announced a year ago. At the end of 2020, Freddie Mac estimated the U.S. was short 3.8 million units to adequately meet demand.  

HECMs, a Federal Housing Administration-backed product offered to homeowners 62 or older, allows older borrowers to tap into home equity as they age, and are assigned to HUD from prior servicers when balances reach 98% of maximum claim amounts. Rather than foreclose on homes when borrowers are deceased, the agency puts loans up for sale to avoid disposition costs and help the housing industry generate supply. 

Finance of America currently comes in as the country' top HECM originator with almost one-third of overall volume, according to data from Reverse Market Insight. Mutual of Omaha Mortgage comes in second with about 22% of originations.