Controversial move puts private investors in lender role

The Federal Housing Administration announced it will begin selling off distressed mortgages in bulk, which would put private investors in the role of lender for thousands of homeowners.

Beginning in September, FHA says it hopes to sell 5,000 mortgages each quarter.

The move will help the FHA get rid of some of the 700,000 or so seriously delinquent mortgages that it holds. Many of those delinquent loans originated from 2007 and 2009, the height of the housing crisis.

Housing Secretary Shaun Donovan says there may be a greater opportunity for investors to buy the troubled loans and either reduce the principal on the loans or offer rent-to-own plans, thereby keeping more homeowners in their homes.

According to Donovan, homeowners whose loans are sold might one day get a call from someone saying “Hey, we’re willing to cut your payment dramatically, or cut the balance on your loan dramatically,” Donovan said. “There are going to be a set of options that might arrive on that doorstep as the best news that homeowner has ever heard.”