HUD plans to sell close to 4,000 HECM loans

The Department of Housing and Urban Development is auctioning off hundreds of millions of dollars in reverse mortgages on Wednesday in a bid to reduce risk to its insurance fund.

Close to 1,600 home equity conversion mortgages (HECMs) secured by vacant properties are for sale, a notice published by the department on the Federal Register says. 

These loans are worth close to $444 million in a competitive sale.

The mortgage loans listed are first liens secured by single-family, vacant residential properties where all borrowers are deceased and no borrower is survived by a non-borrowing spouse, the description of the sale posted by HUD reads. 

This is the first of two planned offerings, with the latter tentatively scheduled for September. At that time, HUD plans to offer multiple residential mortgage loans consisting of close to 2,000 mortgage loans with a balance of about $548 million.

"This initiative supports HUD's continued efforts to reduce financial risk to the Mutual Mortgage Insurance Fund and promote the efficient disposition of defaulted assets," HUD wrote in its notice of the sale.The department frequently sells off loans to qualified purchasers to mitigate losses to the FHA insurance fund. HECM loans, specifically, have frequently been an item of concern regarding their impact on the housing agency's balance sheet because of their complex servicing requirements.

Currently, HUD's MMIF, which backs all FHA loans, has built up a solid capital reserve ratio of 11.5% way above the statutory 2% minimum. 

It is uncertain what happens with the proceeds from the HECM loan sale, though it is likely that the amounts go back into the MMIF. The department did not immediately respond to a request for comment.

Typically nonprofits, local governments and private organizations participate in the bidding. Individuals or entities debarred or suspended from doing business with HUD are excluded from participation.

The department will evaluate the bids and choose the ones with "the best value to HUD."

If a bidder is successful, it will be required to submit a deposit that will be calculated based upon the total dollar value of the bidder's potential award. Award will be contingent on receiving the deposit in the timeframe outlined in the bid deposit confirmation. The deposit amount will be applied to the sale price on the settlement date.

The two sales combined represent one of the biggest in years.

Most recent data published March 2024 shows that over 5,000 HECM loans have been sold off to other parties since 2017.