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Spencer Hayes' Blog

By Spencer Hayes | Agent in Montgomery, AL

FHA Expands Defaulted Mortgage Pool Program

WASHINGTON, DC-The Federal Housing Administration will begin accepting bids from investors interested in acquiring pools of defaulted mortgage loans under an expansion of an FHA disposition program called Distressed Asset Stabilization program. The agency plans to sell approximately 3,500 loans in four metropolitan areas that have been slammed hard by the foreclosure crisis: Chicago; Newark, Phoenix and Tampa. In general, the FHA is increasing the number of loans beyond its original goal of 5,000 per quarter to 9,000 per quarter, said HUD Secretary Shaun Donovan, in a prepared statement.

Donovan also noted that the housing market has begun to turn around. However, he said in a prepared statement, some metro areas are still under pressure. This expanded program will prevent unnecessary foreclosures and further stabilize communities. "Providing the opportunity for borrowers to potentially stay in their home under a new sustainable mortgage or other meaningful help not only benefits that homeowner but reduces the costs to FHA and ultimately benefits the entire community."

Under the program, loans are typically sold at a market-determined price that is below the outstanding principal balance. Once the note is purchased, foreclosure is delayed for at least six months, the point being to give the new servicer time to work through alternatives with the borrower. The hope is that because the loans have been purchased for less than what the borrower owes, the investor will reduce or modify the loan terms and still be able to make a return on the initial investment.

Institutional capital has become increasing interested in the foreclosed and distressed single-family home asset class, so the FHA will surely get a number of competitive bids for the pool. Earlier this month, Bloomberg reported that Blackstone Group has invested more than $250 million in foreclosed single-family homes, citing unnamed sources, with plans to rent out the residences to possibly take them public as a REIT.  Another example is Waypoint Real Estate Group, which has plans to buy 10,000 to 15,000 more foreclosed houses by the end of next year, according to the New York Times. 

These are still early days for this particularly strategy, even though the initial investors appeared to have made out well. "“Time will tell whether the housing crisis has permanently altered Americans’ interest and ability to buy and own homes and whether or not it has set the stage for a new asset class for sophisticated real estate investors," EYA's Howard Roth wrote in a recent column for GlobeSt.com. "Rent-to-buy could prove sustainable in this respect; however, the challenge will be in achieving the concentrations and economies of scale that can be managed efficiently."


By Torang | Save $10,000's,  Tue Dec 11 2012, 12:28
Great information.

Thanks for sharing.


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