The Department of Housing and Urban Development will sell a $1.7 billion portfolio of nonperforming Federal Housing Administration loans in September as part of a bulk sale program aimed at helping borrowers avoid foreclosure, the loan sale advisory firm DebtX said Thursday.

HUD created its Distressed Asset Stabilization Program in 2010 to safeguard the FHA's insurance fund while helping seriously delinquent borrowers avoid foreclosure. Under the program, seriously delinquent FHA loans are sold for less than what the borrower owes, which gives investors the flexibility to reduce or modify the loan's terms. Investors who buy the loans in a competitive bidding process have to wait six months before proceeding with a foreclosure.

HUD said in July that it would ramp up its bulk loan sales to 9,000 per quarter from an initial goal of 5,000 per quarter. So far, HUD has sold just 2,100 loans to date since the program was created in 2010.

The sale of 9,443 loans with an average balance of $182,000 each includes homes located in some of the hardest-hit housing markets: Chicago, Newark, N.J., Phoenix and Tampa. The program is part of the Obama administration's broader strategy of encouraging public-private partnerships to stabilize neighborhoods and home values in certain critical markets.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.