FHA Announces Most Significant Improvements to Date for Distressed Notes Sales Program
Investor Update
June 30, 2016
WASHINGTON – The U.S. Department of Housing and Urban Development (HUD) announced today that it is making a series of enhancements to the Department’s Distressed Asset Stabilization Program (DASP) that would have purchasers of severely delinquent mortgages offer qualified borrowers principal reductions and protection from “payment shock.” Certain families with distressed mortgages insured by the Federal Housing Administration (FHA) may soon be eligible for a reduction of their outstanding loan amounts should their mortgages be sold through DASP.
In addition, FHA’s latest enhancements prohibit investors from abandoning low-value properties in high-foreclosure neighborhoods to prevent blight. FHA is also offering greater opportunity for non-profit organizations, local governments and other governmental entities to participate in DASP. Loans are not eligible to be sold through DASP unless and until all FHA loss mitigation efforts are exhausted. On average, mortgages sold through this sales program are 29 months delinquent at the time of the auction. Read additional details on the latest enhancements announced today.
“FHA is deeply committed to protecting struggling homeowners and making certain they have the greatest opportunities to avoid foreclosure and remain in their homes,” said Ed Golding, HUD’s Principal Deputy Assistant Secretary for the Office of Housing. “While thousands of homeowners avoided foreclosure through this note sales program, we continue to explore new ways to help these families and to offer more opportunities for public-minded organizations to have a seat at the table.”
FHA’s new DASP enhancements include:
- Principal Reduction/Capital Arrearage Forgiveness – Principal forgiveness is the first option investors must consider offering to borrowers when evaluating them for a modification.
- Payment Shock Protection – FHA will limit interest rate increases to no more than one percent per year after a five-year period where the rate is fixed; this is consistent with the Home Affordable Modification Program (HAMP).
- Walk-Away Prohibition – Effective immediately, FHA will prohibit any purchaser of single-family mortgages under DASP from abandoning lower value properties in order to prevent neighborhood blight.
- Alternative Bidding for Non-Profit Buyers – This enhancement will allow qualified non-profit organizations to bid on a partial pool of notes up to five percent of a National Pool and to pay the reserve price. This alternative offers another opportunity for non-profit organizations and local governments to participate in DASP along with those announced last year (non-profit/government-only NSO pools and direct sales offerings).
- Streamline Direct Sales to Interested Government Entities – FHA is providing new standard guidance on the sale of distressed mortgages directly to qualified government entities and local governments. This will provide greater education and awareness among these public entities which may be interested in participating in DASP.
- Target loans for DASP sales based on the interest of non-profits and local governments-FHA will enhance its efforts to identify and offer loans in targeted distressed areas to non-profits and local governments. FHA will continue its outreach to solicit their interest in geographically targeted loan sales. These efforts are aimed at helping vulnerable neighborhoods maintain more stable communities.
Last year, FHA strengthened DASP to further help defaulting families still living in their homes and to allow for greater participation among non-profit organizations. FHA expanded a foreclosure moratorium from six-to-12 months, requiring purchasers of these distressed mortgages to suspend any foreclosure action against these families. In direct response to non-profit organizations seeking to participate in DASP auctions, FHA provided more advanced notice of pending sales and extended the due diligence periods to accommodate these organizations. In addition, FHA offered a ‘first look’ opportunity for non-profits to purchase vacant properties to be occupied by owner-occupants. Finally, FHA created specific pools of mortgages that would be exclusively offered to non-profit organizations and local governments.
Source: HUD
