The U.S. Department of Housing and Urban Development (HUD) has proposed a new rule to establish a permanent program selling seriously delinquent mortgages insured by the Federal Housing Administration (FHA).
The sale of delinquent mortgage notes for both forward loans and home equity conversion mortgages (HECMs) is actually technically already in effect, albeit in a purely test capacity. Such sales have been allowed since 2002, greenlit to maximize recoveries and fortify HUD’s Mutual Mortgage Insurance Fund, which provides mortgage insurance on loans made by FHA-approved lenders. The proposed rule would crystallize the use of these sales from a demonstration to a permanent policy, to be named the Single Family Sale Program.
The proposal does include some changes made to the demonstration program, including a mandate that all purchasers of the loan notes to adhere to post-sale requirements related to HUD’s mission of creating affordable homes and sustainable, inclusive communities. One such requirement would be offering a “first look” to prospective owner-occupants, nonprofits and government entities when properties associated with the purchased notes are sold. HUD would also be allowed to continue prioritizing nonprofits and government entities when awarding such mortgages.
“Every day, the Biden-Harris Administration and HUD are looking for new ways to expand the availability of affordable homes for families to purchase or rent,” said Adrianne Todman, acting secretary of HUD. “This proposed rule will help struggling homeowners, stabilize neighborhoods and make more affordable homes available for the people we serve.”
“Today’s proposal creates a permanent, standardized set of rules for note sales in the future that incorporates our learnings from previous sales that have taken place as part of the demonstration program,” said Julia Gordon, assistant secretary for housing and commissioner of the FHA. “The new rules underscore the importance of loss mitigation and promote owner occupancy and neighborhood stabilization.”
HUD is currently requesting public comment on the new proposal, due via mail or electronically by Sept. 16.
