WASHINGTON, July 18 (Reuters) - The U.S. Federal Housing Administration said on Wednesday that it would start taking bids from investors for a program intended to sell off thousands of delinquent home loans, as it is almost doubling an offering first announced last month.
The FHA, which protects lenders against borrower defaults, said it would take applications for 9,000 mortgages that are scheduled for bulk sale as early as September, up from the original goal of selling 5,000.
A majority of the loans are located in four metropolitan areas hit particularly hard by the housing boom and bust: Chicago; Phoenix; Tampa, Florida; and Newark, New Jersey.
More than 710,000 FHA-backed mortgages are in default, or about 9 percent of the loans the agency insures. In all, it backs an estimated $1.1 trillion in mortgages.
In June, the U.S. Department of Housing and Urban Development, which oversees the agency, announced plans to offer up thousands of severely delinquent FHA loans to protect its dwindling capital and improve the chances that more troubled borrowers avoid foreclosure.
“FHA not only avoids the costs associated with a long foreclosure process, but also the high costs of maintaining and selling vacant properties in already distressed markets,” Acting FHA Commissioner Carol Galante said in a statement.
The sales build on a smaller-scale pilot program launched in 2010 that sold more than 2,100 FHA mortgages at discounts to private loan servicers.
Under the FHA initiative, borrowers must be at least six months behind on their payments for the loans to be eligible for the investor pools.
Investors will be prevented from foreclosing on the mortgages for six months after buying them, and they will need to modify at least half of the loans to make it easier for borrowers to stay current on payments.
The FHA has played a critical role in the U.S. housing finance system since private lenders retreated at the height of the financial crisis in 2008.
Saddled with losses from risky loans, the agency saw its cash reserves reach a record low of $2.6 billion last year, raising concerns among some lawmakers about its solvency and the potential need for a taxpayer-funded bailout. (Reporting by Margaret Chadbourn; Editing by Lisa Von Ahn)