Industry Update
July 17, 2024

Source: U.S. Department of Housing and Urban Development

The U.S. Department of Housing and Urban Development (HUD) is proposing a new rule to govern the sale of seriously delinquent single family mortgage loans insured by the Federal Housing Administration (FHA). These rules will help expand available affordable homes for families and improve stability of communities.

“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 HUD Acting Secretary Adrianne Todman. “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 Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. “The new rules underscore the importance of loss mitigation and promote owner occupancy and neighborhood stabilization.”

Note sales of delinquent mortgages have been tested by HUD since 2002, and this proposed rule transitions the program from a demonstration to a permanent program. The proposed rule includes changes made to the demonstration program under the Biden-Harris Administration that required all note sale purchasers to adhere to mission-oriented post-sale requirements, including offering a “first-look” to owner-occupants, nonprofit organizations, and government entities when properties associated with the purchased notes are sold. The proposed rule also would enable HUD to continue prioritizing awarding these mortgage loans to nonprofit organizations and governmental entities and provides guidelines for direct sales of notes to such buyers.

The program requirements included in the proposed rule are intended to ensure that the program meets its dual purpose to manage HUD’s fiduciary responsibility to the Mutual Mortgage Insurance Fund while encouraging mortgage loan outcomes that are consistent with its mission. Such outcomes include providing assistance to borrowers facing hardships, promoting the opportunity for new owner-occupants to buy foreclosed properties, encouraging the conversion of properties into affordable for sale and rental homes, and protecting neighborhoods against vacancy and blight.

HUD is requesting public comment on its proposal, including the questions it poses to respondents, through the methods outlined in the notice by September 16, 2024.