On July 17, HUD announced a rule to regulate the sale of seriously delinquent mortgage loans insured by FHA. According to HUD, the proposed rule would increase the availability of affordable homes and enhance the stability of communities.

HUD proposed the merger of two existing demonstration programs, the Single Family Loan Sale Program (SFLS) and the HUD-held Vacant Loan Sales Program for Home Equity Conversion Mortgages (HLVS), into a single permanent program called the Single Family Sale Program. The new program will continue to sell forward and reverse mortgage loans separately, but it will be designed to provide FHA with the flexibility to maximize returns to the Mutual Mortgage Insurance Fund and manage defaulted loans more efficiently, including the sale of such loans.

The proposed rule would codify the demonstration structure and process under SFLS and HVLS. Additionally, the proposal will include guidelines for servicers on borrower notifications regarding loan sales and establishes post-sale requirements, such as a “first-look” provision for certain entities when properties become owned after foreclosure.

The proposed rule further set forth (i) HUD’s ability to reduce or reject claims that were filed late or remain in suspended status, (ii) mortgagees’ requirements to certify certain mortgages, (iii) what constitutes qualified participants in the Single Family Sale; (iv) requirements of Purchasers; (v) settlement procedures for a Single Family Sale; (vi) purchasing servicing requirements; (vii) disqualifications; and (viii) relevant definitions, among other things.

HUD is seeking public comment on the proposed rule and comments must be received by September 16.