HUD Modifies Its FHA Distressed Asset Stabilization Program
HUD recently announced that it is making adjustments to its Distressed Asset Stabilization Program (DASP) to help more struggling homeowners avoid foreclosure. Specifically, HUD will impose a 12-month foreclosure moratorium on all loans sold through DASP and create more opportunities for nonprofit organizations to participate in the program.
Under DASP, HUD sells Federal Housing Administration (FHA)-insured single-family loans that are headed for foreclosure to investors who are encouraged to work with borrowers to help them avoid default. Supporters argue that this initiative benefits all parties involved because: in many cases it is less expensive for HUD than the alternative of a foreclosure and subsequent sale as a real estate-owned (REO) property; it guarantees that the borrower has access to all available loss mitigation options; and the loan servicer has a monetary incentive to get the loan performing again. Mortgages must be at least six months delinquent to be included in a DASP pool, and the loan servicer must have exhausted all possible steps through FHA’s loss mitigation process.
Currently, any investors who purchase a loan pool through DASP cannot foreclose on any of the loans in the pool for at least six months. Investors are also encouraged, though not required, to asses a borrower’s eligibility for various loss mitigation programs. Under the new guidelines, investors will be unable to foreclose on loans they purchase through DASP for at least one year, and investors must also evaluate whether each borrower would qualify for the Home Affordable Modification Program (HAMP).
HUD also announced that non-profit servicers will have first access to Neighborhood Stabilizing Outcome (NSO) loan pools to boost non-profit participation. NSO pools are comprised of loans from geographically concentrated areas. Investors who purchase NSO pools are required to ensure that half of the nonperforming loans in the pool are resolved in such a way that promoted neighborhood stabilization. HUD will also create special auctions that are only open to nonprofit bidders and establishing a first-look period during which owner occupants, government entities, and nonprofits have the opportunity to buy a real estate owned property before an investor may bid. Many advocates had been urging HUD to increase nonprofits’ role in the program, arguing that such groups are more likely to work with borrowers to help them avoid default than private investors.
Other DASP changes include stricter reporting requirements and increased penalties for failing to comply. HUD plans to hold the first DASP sale under the new parameters in June 2015.