Maxine Waters, Congresswoman and Chairwoman of the House Financial Services Committee, said the Federal Housing Administration (FHA) “acted in haste” [1]in its creation of the Distressed Asset Stabilization Program (DASP), according to a statement from the Committee.
The Committee said Waters requested a Government Accountability Office (GAO) report in 2016 on DASP, looking to ensure the program was serving its dual purpose of helping FHA borrowers who were having trouble paying their mortgage, and minimizing losses to the FHA.
According to Waters, the GAO, titled “Federal Housing Administration: Opportunities Exist to Improve Defaulted, Single-Family Loan Sales,” finds that the Department of Housing and Urban Development will “need to make significant reforms” to DASP to formalize the program’s requirements to make sure it does not harm borrowers.
“My colleagues and I have continued to express concerns that the FHA has acted in haste and created a program that infringes on the rights of homeowners to access the protections that come with paying into the FHA insurance program, allows private investors that purchase mortgages through DASP to evade their responsibilities under the program to help borrowers, and prevents qualified nonprofits that are invested in the well-being of borrowers and communities from competing effectively in DASP sales,” Waters said in a statement.
She continued, saying the report confirms the Committee’s concerns were “warranted” and it is drafting a legislative solution to make sure the FHA is protecting borrowers recovering from the Great Recession.
The GAO also found that the FHA is not adequately checking for DASP eligibility, adding that around 2.65% of loans sold in 2016 were ineligible. The FHA was also revealed to not be properly assessing whether the program is fulfilling its purpose of assisting the borrowers.
According to the GAO, the DASP “does not evaluate outcomes for sold loans against similar unsold loans.
“When GAO performed an analysis to compare outcomes for sold loans against similar unsold loans, it was determined that sold defaulted loans were more likely to experience foreclosure than comparable unsold, defaulted loans,” the Financial Services Committee stated.
The FHA created DASP following the financial and housing crisis in 2008, allowing investors to purchase pools of FHA mortgages at a discounted price. According to GAO, the FHA has auctioned off approximately 111,000 loans to investors from 2010-2016.