A $1.7 billion portfolio of non- performing, federally insured home loans will be offered for sale at auction next month as the government seeks to reduce losses from mounting foreclosures.

The loans will be auctioned in pools consisting of homes in Chicago; Phoenix; Newark, New Jersey; and Tampa, Florida, according to a statement today from SEBA Professional Services, a Washington-based financial adviser, and Debt Exchange Inc., a Boston-based online loan-auction service also known as DebtX. They are handling the sale for the portfolio, which consists of 9,442 loans with an average balance of $182,000, for the U.S. Department of Housing and Urban Development.

"There is pent-up demand in the investor community to acquire assets in bulk," DebtX Chief Executive Officer Kingsley Greenland said in the statement.

The Federal Housing Administration, the HUD agency that insures loans to first-time homebuyers and other borrowers with limited funds for down payments, expected to sell 9,000 discounted loans in September to start its expanded bulk-sale program, acting FHA Commissioner Carol Galante said last month. The FHA's bulk sales began in 2010 with a pilot program that offered buyers as much as 65 percent off unpaid loan balances with the understanding that they would write down debt and modify terms to help borrowers keep their homes.

About 9 percent of FHA-insured mortgages were 90 days late or in foreclosure as of June 30, compared with 7.3 percent rate for all home loans, the Mortgage Bankers Association said on Aug. 2. Foreclosure starts on FHA-insured loans increased to 1.53 percent in the second quarter, up 0.57 percentage point from the previous three months. It was the only type of mortgage with an increase in foreclosure starts during the period, the association said.

SEBA and DebtX will accept bids from qualified buyers on Sept. 12, the companies said.

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