Thursday, July 19, 2012

FHA Announces New Details for Distressed Loan Sale

During a conference call Wednesday, Acting Federal Housing Administration (FHA) Commissioner Carol Galante announced applications are now being accepted for the Distressed Asset Stabilization Program, which is scheduled to hold its next sale in September.

About 40 percent of the sale will be concentrated in four hard-hit metro areas: Chicago, Newark, Phoenix, and Tampa, where about 3,500 loans are to be sold.

Assuming this upcoming sale is successful, Galante said FHA intends to look at other geographies with significant inventory for future sales.

When the program expansion was first announced in June, an upwards of 5,000 loans were expected to be sold. Now, Galante said the national number appears to be closer to 9,000.

While the new number is an approximation for now, Galante explained much more interest has been generated for the program since the loan sales will be held on an ongoing quarterly basis.

FHA first introduced the program in 2010 as a pilot, which led to the purchase of 2,100 single-family loans. The program prevents FHA-insured loans from getting lost to foreclosure by allowing investors to purchase at-risk mortgages, then turn them into performing loans.

A servicer can place a loan into the loan pool for sale if the borrower is at least six months delinquent, all loss mitigation options have been exhausted, a foreclosure proceeding has been initiated, and if the borrower is not in bankruptcy.

The FHA-insured notes are sold to investors at a price that is generally below the outstanding principal balance.

FHA also announced new neighborhood stabilization requirements for the hard-hit metros selected. In those areas, no more than 50 percent of loans purchased within a pool can be sold as REO properties.

“These markets were chosen because of the high concentration of FHA loans in the pipeline for foreclosure and because each allows us to test this strategy under a variety of market conditions,” said Galante.

Other options must be sought such as leasing the property to the homeowner or a modification. A short sale to a private investor doesn’t qualify for neighborhood stabilization credit.

For the program, 1-4 units will also be eligible, not just single-family homes.

FHA stated in a release that eligible investors need to have experience in asset management and property management, as well as a proven track record in helping seriously delinquent borrowers find an alternative to foreclosure.

By: Esther Cho 07/18/2012

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