The U.S. Department of Housing and Urban Development (HUD) reportedly rejected low-ball bids from investors on about $450 million of home loans that it tried to auction in late October.
It was the first time HUD failed to sell some of the soured mortgages it is auctioning off in the wake of the housing crisis, according to a Bloomberg News report.
Since 2010, HUD has sold about 50,000 non-performing single-family loans insured by the Federal Housing Administration (FHA) to investors, as it attempts to stem losses, while at the same time keeping homeowners out foreclosure.
However, during an auction held Oct. 30, the agency for the first time deemed that the bids it had received were too low, according to the report, which cites un-named sources.
The mortgages HUD sought to auction came from two pools that had exceptionally high loan-to-value ratios, according to the report. In some cases, the loan amount exceeds the value of the property.
The refusal to accept the bids could be an indication that the FHA has reached its limit in terms of the losses it is willing to absorb. The insurer has been deluged with foreclosures as a result of defaults on mortgages stemming from the financial crisis. In September, the agency announced that it would need a $1.7 billion Treasury bailout, the first in its 80-year history, in order to shore up its reserves.
Debt Exchange Inc. (DebtX) is handling the current round of online auctions for HUD, which is looking to sell about 24,000 loans through its December ‘national pool’ auctions, according to the Bloomberg News report. In addition, HUD is hoping to auction an additional 5,000 mortgages from Atlanta, Baltimore, Washington, Indianapolis, Las Vegas and California in ‘Neighborhood Stabilization Outcomes’ pools.
The department has reportedly sold more than $8 billion in low-performing mortgage loans to investors since 2010.
The current round of auctions is set to resume on Dec. 10.