The U.S. Department of Housing and Urban Development (HUD) proposed a rule the agency stated will expand access to affordable homes and improve community stability.
Specifically, the rule will govern the sale of seriously delinquent single-family mortgage loans insured by the Federal Housing Administration (FHA). HUD stated note sales of delinquent mortgages have been tested by the agency since 2002. Should the rule be enacted, the Single Family Sale program, which has been a demonstration for the last two decades, will become a permanent program.
“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,” HUD acting Secretary Adrianne Todman said in a release. “This proposed rule will help struggling homeowners, stabilize neighborhoods, and make more affordable homes available for the people we serve.”
HUD’s Single Family Sale demonstration assigns eligible single-family mortgage loans insured by the FHA to the HUD secretary in exchange for claim payments, the proposed rule explained. The mortgage notes are then sold without FHA insurance to qualified purchasers in a way that seeks to maximize recoveries, strengthen HUD’s mutual mortgage insurance fund (MMIF), and achieve the operational goals for the MMIF.
In making the Single Family Sale program into a permanent one, the proposed rule included changes to the program, such as requiring all note sale purchasers to adhere to mission-oriented post-sale requirements such as offering a “first-look” to owner-occupants, nonprofit organizations, and government entities when the properties associated with purchased notes are sold. The changes also would allow HUD to continue prioritizing awarding these mortgage loans to nonprofit organizations and government entities. The updates also provide guidelines for direct sales of notes to such buyers, HUD stated.
Program requirements included in the proposed rule are intended to ensure the program both manages HUD’s fiduciary responsibility to the MMIF, while also encouraging mortgage loan outcomes consistent with the agency’s mission. Outcomes the HUD highlighted were providing assistance to borrowers facing hardships, promoting the opportunity for new owner-occupants to buy foreclosed properties, encouraging the conversion of properties into affordable homes for sale and rentals, and protecting neighborhoods against vacancy and blight.
“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,” Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon said. “The new rules underscore the importance of loss mitigation and promote owner occupancy and neighborhood stabilization.”
Public comments on the proposal are due by Sept. 16.