HUD announced today that it will make 3,500 distressed loans available through its Distressed Asset Stabilization Program—part of an expansion to the FHA disposition program that sells pools of defaulted mortgages headed for foreclosure.
A competitive application process in four metro areas—Chicago, Newark, NJ, Phoenix, and Tampa, Fla.—will determine which applicant can buy loans “at a market-determined price generally below the outstanding principal balance,” according to HUD following a news conference Wednesday morning. Beyond that, FHA would processes an insurance claim and remove the FHA insurance, whereupon the loan gets transferred to the investor. At this point, foreclosure on the loan would be delayed for at least six months, allowing the servicer and the borrower to explore alternatives.
This is good news for the localities represented here and represents a 60 percent increase in potential distressed single-family loan sales since FHA began selling loans through the Distressed Asset Stabilization Program in 2010. We've covered efforts on the ground in places like Arizona and Illinois to buy and modify distressed loans preforeclosure. How this program pans out in those communities—where, in some cases, there are significant stabilization initiatives underway—remains to be seen.