Chicago Real Estate Market Targeted for Stabilization Program

July 19, 2012

Four nationwide housing markets hit hard by the foreclosure crisis have been chosen for a pilot program aimed at helping those cities stabilize, and the Chicago real estate market is one of them.

The Federal Housing Administration (FHA) on Wednesday unveiled the Distressed Asset Stabilization Program, in which pools of FHA loans that are in default and headed for foreclosure will be sold to investors in an effort to avoid the costly foreclosure process.

house with a buoy around it.The program seems like a win-win: Investors will pay a market-determined price that is generally less than the amount due on the mortgage, and in return, foreclosure proceedings will be delayed for at least six months while the new mortgage servicers attempt to find options to keep the borrowers out of foreclosure, whether through a loan modification or a short sale.

Because the loans will be sold for less than the total mortgage due, investors will be able to reduce or modify loan terms while making a return on the initial investment. If there are no alternatives for the borrower, the investor may be able to help that borrower sell the home through a short sale, so the borrower still avoids the foreclosure process.

“This program creates the opportunity for everyone – the homeowner, the new mortgage holder, FHA, and the community – to walk away a winner,” said Acting FHA Commissioner Carol Galante. “FHA not only avoids the costs associated with a long foreclosure process, but also the high costs of maintaining and selling vacant properties in already distressed markets.”

In September, approximately 3,500 loans will be sold in four metropolitan areas that are among the hardest hit by foreclosures. In addition to Chicago, the other metro areas are Newark, New Jersey; Phoenix, Arizona; and Tampa, Florida. The Chicago area has the most amount of default mortgages for sale with 1,500 of the loans.

“The housing market has momentum not seen since before the crisis,” said HUD Secretary Shaun Donovan. “But some metro areas are still under pressure and some FHA borrowers remain seriously behind on their loans and stand to lose their homes in a matter of months.

“Providing the opportunity for borrowers to potentially stay in their home under a new sustainable mortgage or other meaningful help not only benefits that homeowner but reduces the costs to FHA and ultimately benefits the entire community.”

For more information on the program, including how to bid on a loan, visit hud.gov/fhaloansales.

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