The Department of Housing and Urban Development began spring cleaning last week with the sale of 16,231 single-family mortgages to the private market.

The sale serves as another measure in President Clinton's 1994 initiative to streamline HUD's operations. It also will generate up to $140 million in budgetary savings, the department said.

The sale was the largest of the seven conducted since the end of 1994, when HUD began its program to liquidate poorly performing loans. These loans, originally insured under the FHA program, became part of the government's portfolio when borrowers went into default.

"We're taking advantage of the fact that there's an excellent market for these loans," said Helen Dunlap, deputy assistant secretary for FHA loans. The department got an average of 83 cents on every dollar of loan value in the current sale, much more than the loans' previously estimated market value.

Once loans are returned to the private market, they can be worked out or serviced, often while earning community reinvestment credits for the purchaser.

The department is hoping to sell 15,000 more FHA mortgages this year, according to Ms. Dunlap. A sale of multifamily mortgages is slated for May, while the next single-family sales will be held in July and September.

Following that, the association plans to hold additional sales of its mortgage portfolio every four months, until there is no longer a backlog, Ms. Dunlap said.

"It's part of a strategy to focus our attention on our insured portfolio," she added. "The Office of Housing and Urban Development's held assets are resources we can ill afford to keep."

Selling off nonperforming mortgages allows HUD to free up assets for reinvestment into insurance of other loans, and to downsize its bureaucracy, Ms. Dunlap said. "It allows us to focus our staff on what we are supposed to be doing."

The most recent auction drew 31 bidders - from small regionals to large nationals, Ms. Dunlap said. "Our objective with this program is to cultivate a broad market for these loans," she said.

Loans that were sold in the most recent auction were concentrated in California, Texas, Colorado, and Arizona, with an average defaulted loan balance of $45,000.

This sale featured the use of Internet World Wide Web sites, compact discs, and computer diskettes to disseminate sales information and keep down due-diligence costs.

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