The Federal Housing Administration (FHA) on January 28 auctioned 18,894 single family mortgages with an unpaid principal balance (UPB) of $1.13 billion. The mortgages had been insured by FHA and were secured by homes across the United States. Since 1994, FHA's auctions have yielded $2 billion in budget savings for the taxpayers.

The latest auction provided the largest number of mortgage loans offered in any FHA sale. The mortgages were performing, non-performing and subperforming. The returns, as a percentage of UPB, were the highest generated to date in the agencyþs mortgage auctions.

The competitive auction generated proceeds of $1.04 billion for the government -- or about 92 percent of the mortgages' UPB. The auction was part of a series of sales launched by FHA to sell up to $11 billion in multifamily and single family mortgages that had been insured by the agency and came into FHAþs inventory, in most cases, when borrowers defaulted.

The mortgage sales are a key component of the Clinton Administration's initiative to reinvent HUD and restore FHA's financial health, according to FHA Commissioner Nicolas P. Retsinas. Since launching the sales program, FHA has sold nearly 100,000 mortgages, with a collective UPB of more than $8 billion.

"Last weekþs sale was our 17th since 1994 and we couldnþt be more pleased with the results," Retsinas said. "FHAþs sales have produced almost $2 billion dollars in budget profits since 1994. These funds are being applied to housing and neighborhood initiatives and deficit reduction. The sales have also reduced the heavy burden on our staff of servicing troubled mortgages. This enables us to focus more attention on expanding homeownership and on protecting the health of our larger $400 billion portfolio of mortgages.þ

In addition to single family mortgages, FHA has also sold more than 1,100 multifamily mortgages, as well as loans for manufactured housing rehabilitation and for land development.

Retsinas said that through its mortgage sales, FHA has returned a large volume of mortgages to the private sector, which has far greater capacity than FHA to attend to the assets and the needs of individual properties. The success of FHAþs sales is capturing the attention of Congress and other federal policy makers, he added. They are now beginning to explore similar sales in other federal credit and insurance agencies.

For each FHA mortgage sale, FHA and the Office of Management and Budget determine what the value of the mortgages would be if they were to remain in the government's hands. Congress may apply any proceeds generated above this target to other initiatives or to reduce the federal deficit. Proceeds from this latest single family sale exceeded the value-to-government target by approximately $247 million. The sale is projected to close in March. The names of the successful bidders will be released upon closing.

FHA expects to hold at least one more single family sale in the next few months. The agency is also planning a potential sale of nursing home and hospital mortgages that had been insured by FHA. With the closing of last weekþs sale, FHA will have approximately 35,000 single family mortgages remaining in its assigned mortgage inventory. Since October 1995, about 65,000 loans have been sold in the four single family auctions.

Last week's sale drew 1,639 bids from 11 different bidders. There were 3 winning bidders, and each mortgage was sold. As in previous sales this year, bidders were permitted to submit bids on individual blocks of mortgages as well as combinations of mortgage blocks. Using a computer optimization model developed by Lucent Technologies Bell Laboratories, FHA was able to determine the bid combination providing the maximum return to the taxpayers. HUD's Financial Advisor for this sale was Merrill Lynch Mortgage Capital, Inc. Due diligence was performed by Deva & Associates.

FHAþs mortgage sales team recently received a Hammer Award for government reinvention from Vice President Gore's National Performance Review Committee. The program has cut red tape and empowered employees by lifting the burden of managing and servicing mortgages from headquarters and field office staff.