Housing & Urban Development Changes Home Loan Rules
NEW YORK (TheStreet) -- The Housing and Urban Development (HUD) program is changing its rules as people continue to lose their homes to foreclosure, after the government sold its troubled Federal Housing Administration (FHA) loans to private equity firms in an effort to combat the 2012 housing crisis, CNBC's Diana Olick reported on "Power Lunch" Wednesday.
"The government sold just over 100,000 of its troubled FHA homes to private investors in a program that began in 2012. The idea was to rid the FHA of the problem and refuel its insurance fund with the proceeds and the rationale was that deep-pocket investors would foreclose on fewer homes," Olick said.
"If they do their modeling correctly, these investors actually have an incentive, a profit motive, to keep families in their homes because keeping them in their homes is more profitable than going through the lengthy foreclosure process," HUD Secretary Julian Castro stated, explaining the program.
But investors did foreclose on homes.
As a result, HUD is changing the rules to require private investors to consider reducing the size of the loan, according to Olick.
In addition, HUD is prohibiting investors from cutting interest rates only temporarily and from abandoning properties. HUD will also create "smaller, cheaper loan pools that these groups can afford" to make it easier for community groups and nonprofits to buy loans.
These rules only apply to sales going forward.
Currently there are 390,000 homes in America in some stage of foreclosure and 1.1 million mortgages are "considered seriously delinquent," meaning residents are past payments by 90 days or more, Olick noted.