The Federal Housing Administration took a 74% loss in the first major test of its expanded distressed note sale program last September.
The high loss rate compares to an average loss of 64.5% (based on the unpaid principal balance of the loans) on REO sales and a 44.4% loss on short sales, according to a FHA quarterly report to Congress.
This quarterly report issued on May 15 revealed the totaled results of the September note sale.
The sale of 9,000 nonperforming loans last September included 5,300 single-family loans where investors paid 39% of the unpaid principal balance of the loans. These investors can’t foreclose on the loans for at least six months.
As part of the September sale, FHA also auctioned off 4,100 in defaulted loans under its new Neighborhood Stabilization Outcome program. These buyers, generally nonprofits, community groups and a few investors, can’t foreclosure for up to three years.
FHA does not break out the results of the Neighborhood Stabilization sales. But those distressed loans were concentrated in four hard-hit cities—Chicago, Tampa, Phoenix and Newark.
Servicers have generally exhausted all loss mitigation efforts before placing loans in a FHA note sale. In the investor pools, a lot of the nonperforming loans are located in judicial foreclosure states, which reduces their value.
FHA completed a note sale in March. The
On July 10, FHA will sell another 5,000 loans through its Neighborhood Stabilization Outcome initiative.
