In 1987, the Federal Housing Administration (FHA) launched the Claims Without Conveyance of Title (CWCOT) program to encourage competitive third-party bidding at foreclosure auctions and to eliminate the need for servicers to convey properties to the US Department of Housing and Urban Development.
But servicers underused CWCOT until 2012. Given the increased need following the housing market crisis, the Obama administration adjusted the program to make it easier to use.
To understand how the CWCOT program compares with the traditional real-estate-owned (REO) conveyance model, we partnered with Auction.com, which runs more than half of all auctions for CWCOT properties.
We found that CWCOT’s usage has increased steadily, rising from 31 percent of all property dispositions in 2012 to more than 80 percent in 2024. During that time, CWCOT saved the FHA’s Mutual Mortgage Insurance (MMI) Fund an estimated $10 billion in potential losses compared with the traditional REO conveyance model. The program has also brought affordable housing to market faster and reduced financial losses for distressed homebuyers compared with traditional REO conveyance.
Here, we outline the CWCOT program’s successes and how the program could deliver even more benefits to the FHA, borrowers, and homeowners in foreclosure.
The CWCOT program has saved the FHA’s MMI Fund more than $10 billion
Several combined situations lead homeowners to foreclose on their property: A borrower is severely delinquent on their loan, loss mitigation options fail, the borrower cannot sustain homeownership, and the borrower either cannot sell their home for more than the mortgage amount or chooses not to sell. When this happens, there are two possible paths for homeowners: traditional REO conveyance and an REO alternative disposition.
The FHA tends to lose more money on traditional REO conveyance than on REO alternatives, as it is a burdensome process with an extended timeline.
There are three types of REO alternatives: note sales, short sales, and CWCOT. Because the FHA holds note sales only in bulk, note sales are used primarily when foreclosure rates are high. As a result, there have been no forward mortgage note sales since 2017. Short sales also require the borrower’s active participation.
Thus, the CWCOT program generally provides the quickest path to disposition and saves the most money for the lender, the FHA, and sometimes even the borrower. Of the 16,168 REO alternatives in fiscal year 2024, there were 29 note sales, 1,132 short sales, and 15,007 third-party sales. Almost all the third-party sales were CWCOT.
REO alternatives have a much lower loss severity than REO, meaning they save the MMI Fund more money. Since 2012, the difference in the loss rate between REO and REO alternatives, on average, has been around 15 percentage points. Currently, it’s about 12 percentage points.
Applying the quarterly differential between the loss rates to the volume of REO alternatives each quarter, we find that REO alternatives have produced cumulative savings of more than $10 billion to the MMI Fund between 2012 and 2024. As a result, the MMI Fund’s 2024 capital ratio is higher by about 0.5 percentage points.
The CWCOT program gets affordable properties back on the market more quickly than REO conveyance
Compared with REO conveyance, CWCOT enables affordable housing to come to market more quickly—a critical benefit in the current supply-constrained market.
In our analysis, we compared traditional REO with CWCOT (where the property was sold to a third-party buyer via auction and then resold on the retail market, typically following renovations). Because of data constraints, our REO sample might not be representative, as we can track only those properties that first went through Auction.com.
We found that from 2021 to 2024, the average time from foreclosure to resale was 785 days for the traditional REO properties compared with 319 days for the CWCOT properties. Sixty-seven percent of the CWCOT properties that were purchased at auction were resold on the retail market within a year.
CWCOT properties also return to the market as affordable housing. The postrenovation retail sales price was $255,887, which produces an average housing cost of $1,820 a month (including principal, interest, taxes, and insurance). This estimated monthly housing cost was, on average, 29.6 percent of the median household income for the surrounding census tract.
The resale price of CWCOT properties is well above that of traditional REO properties, as these properties are generally renovated, while REO properties are sold as is. These numbers indicate that the quick sale to a local community developer at the initial auction prevents further depreciation, and the process encourages property repairs and enhancements before resale.
Seventy-three percent of the renovated CWCOT resales were owner occupied as of the first quarter of 2025. That’s 12 percentage points higher than the owner-occupancy rate for traditional REO properties.
The CWCOT program has generated nearly $705 million in surplus funds for distressed homeowners
If a property is sold at foreclosure auction (one of the CWCOT REO alternatives) for more than the total debt plus any third-party charges, such as foreclosure attorneys and fees, the excess proceeds are available to the FHA borrower after any subordinate lienholders are paid. In other words, the surplus funds go to the homeowner in foreclosure.
Comparatively, when properties do not sell at foreclosure auction and either sell at a later auction (i.e., a second-chance auction) or go through the REO conveyance process, the distressed homeowner cannot recover any equity they might have in the home.
Between 2021 and 2024, 67 percent of the CWCOT properties sold on Auction.com were foreclosure auction sales, totaling about 20,000 properties. Fifty-five percent of the sales in foreclosure had surplus funds, averaging about $38,000.
Three ways policymakers could improve the CWCOT program
The CWCOT program has been effective, constituting the bulk of FHA dispositions. But policymakers could make the program better. To expand the program’s ability to save the FHA money and protect distressed homeowners’ equity, policymakers could do the following:
- Provide a better mechanism to adjust pricing for competitive CWCOT auctions. Traditional REO disposition data are sparse and outdated in many local markets because of the low volume of traditional REO dispositions in recent years. Adjusting CWCOT auction pricing to reflect changing market conditions using real-time CWCOT bidding data and recent retail market data would enable better price realization and more third-party sales for CWCOT auctions.
- Ensure the reserve price at auction allows for a larger discount on occupied properties. The current discount is not enough to cover the extra time and costs involved in working with the current occupants to vacate the property.
- Require CWCOT program servicers to participate in a competitive auction for both first- and second-chance auctions to further maximize proceeds to the borrower and the MMI Fund. This would discourage servicers from accepting the first bid above the debt amount. If another path is chosen, the servicer needs to show that it maximized the property’s value.
Research shows that the sale of a discounted foreclosed property can negatively affect the values of nearby homes. That means a higher sales price could benefit the overall community, especially because a disproportionately large share of foreclosed properties are located in underserved areas.
Let’s build a future where everyone, everywhere has the opportunity and power to thrive
Urban is more determined than ever to partner with changemakers to unlock opportunities that give people across the country a fair shot at reaching their fullest potential. Invest in Urban to power this type of work.
