BLOOMBERG NEWS
APR 24, 2015 11:10am ET
The Department of Housing and Urban Development will revise its
auctions of nonperforming mortgages to address concerns that the sales aren't
doing enough to help homeowners in communities hurt by foreclosures.
After winning a bid, buyers will be barred from seizing properties for
at least a year and HUD will begin designating some small loan pools for
purchase by nonprofit groups under a set of changes to be announced by the
agency on Friday.
The new requirements will take effect for HUD’s next loan auctions,
which the agency plans to hold in June and July. The sales will include large
pools of loans from around the country as well as one with mortgages
concentrated in Detroit, restricted for sale to community groups and local
government bidders.
"These changes reflect our desire to make improvements that
encourage investors to work with delinquent borrowers," Genger Charles,
acting general deputy assistant secretary of HUD's Federal Housing
Administration, said in a statement.
Previously, all pools were open to all qualified bidders and
foreclosures were barred for only six months. Nonprofits will get a first
chance to buy homes that end up going through foreclosure.
HUD is also setting a minimum standard for mortgage modifications
offered to borrowers by requiring investors to evaluate whether borrowers are
eligible for aid under the government’s Home Affordable Modification Program.
The agency, which has sold $3.7 billion of soured loans since late
2012 under a program designed to aid neighborhoods, has faced complaints from
nonprofit organizations that its sale terms favored large investors backed by
firms such as Oaktree Capital Management and Blackstone Group. While the FHA's
mortgage-insurance fund has benefited from the sales, there are few signs the
program has helped areas laden with vacant homes.
Borrowers resumed payments on fewer than 13% of the mortgages sold as
of February, according to a HUD report. Almost half the loans were still in
"interim status" because many borrowers, who’ve failed to make
payments for an average of three years, have abandoned their properties.
Winning bidders have four years to get at least half the loans in a
portfolio into repayment or another approved outcome, such as holding the
property for rental or selling to an owner-occupant.
Performance reports by winners of the first three HUD auctions, in
which a total of $1.57 billion in debt was sold, show a wide range of outcomes,
according to reports obtained by Bloomberg through a Freedom of Information Act
request.
HUD has auctioned more than 98,000 nonperforming loans with unpaid
balances totaling $16.7 billion since 2010. The majority of the loans — about
$13 billion worth — were sold in national pools outside the neighborhood-stabilization
program. They came with few requirements aimed at improving communities or
helping delinquent borrowers.
The loan-auction program was established by HUD as it faced mounting
losses to the FHA's insurance fund stemming from the housing crash. The fund
needed a $1.7 billion infusion from the Treasury Department in 2013, the first
in the agency's 80-year history.
Demand for soured mortgages has been increasing as Wall Street firms
compete to buy loans at a discount after a real estate market rebound. Freddie
Mac has auctioned about $2 billion in defaulted debt in three separate sales
since last year. Fannie Mae announced its first bulk sale this month of 3,200
loans with an unpaid balance of $786 million.
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