WASHINGTON — The Federal Housing Administration announced plans Friday to expand a program that encourages the sale of distressed mortgages to new investors.

The program is intended to give struggling FHA borrowers a final chance to stay in their houses while also stabilizing neighborhood home prices by reducing vacancies. It was announced in Chicago by Housing and Urban Development Secretary Shaun Donovan and FHA Commissioner Carol Galante.

"With this program, we will increase by as many as ten times the number of loans available for purchase while making it easier for borrowers to avoid foreclosure," Donovan said. "So this will be another chance, another lifeline, for many of these families that they certainly weren't expecting."

The program, known as the Distressed Asset Stabilization Program, began in 2010 as a pilot program. Since then, about 1,800 FHA loans have been available for purchase annually under the program, according to a HUD press release, which said that under the expanded program 20,000 loans will be available for sale each year.

In order for a mortgage to qualify for sale, the borrower must be at least six months delinquent, the servicer must have exhausted the loss mitigation process and started foreclosure proceedings, and the borrower may not be in bankruptcy.

The loans will be sold in pools at a market-determined price, which will generally be below the outstanding principal balance of the loans, the press release stated.

The purchasers will be required to delay foreclosure proceedings for six months. In addition, the buyers will face restrictions on the number of properties that can become bank-owned, as well as on when they can resell the properties.

Decisions about what geographic areas will be included in the program have not yet been made, but officials hope to make the first sales in September.

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