The U.S. Department of Housing and Urban Development (HUD) on Friday announced significant changes to its Distressed Asset Stabilization (DASP) program meant to offer more protections to borrowers facing foreclosure and increase non-profit participation in purchasing distressed loans.
Under the new rules, loan servicers are required to delay foreclosure on a home for a year and evaluate all borrowers facing foreclosure for participation in the government's Home Affordable Modification Program (HAMP) or a similar loss mitigation program. Loan servicers could previously foreclose on a home six months after they received the loan and were not required to evaluate borrowers for loss mitigation programs, though they were encouraged to do so.
The improvements to the Neighborhood Stabilization Outcome (NSO) sales portion of DASP include giving non-profits a first look at vacant properties, allowing purchasers to re-sell notes to non-profits, and offering a pool of loans for non-profits only.
"These changes reflect our desire to make improvements that encourage investors to work with delinquent borrowers to find the right solutions for dealing with the potential loss of their home and encourage greater non-profit participation in our sales," said Genger Charles, Acting General Deputy Assistant Secretary, Office of Housing. "The improvements not only strengthen the program but help to ensure it continues to serve its intended purposes of supporting the MMI Fund and offering borrowers a second chance at avoiding foreclosure."
The changes come with stronger reporting requirements that include tougher penalties for non-compliance of quarterly reporting requirements, along with a new requirement of those who purchase loan pools to report on borrower outcomes even if a note is subsequently sold after the original purchase.
FHA's single-family note sale program resumed in 2010 as a pilot program allowing pools of loans headed for foreclosure to be sold to qualified bidders that will help bring the loans out of default through some type of loss mitigation. An FHA-backed loan can be included in a pool for sale if the loan is at least six months delinquent and if all loss mitigation options have been exhausted. DASP began in 2012 as a way for FHA to greatly increase the number of seriously delinquent loans for sale and at the same time encourage investment in the communities that were hardest hit by the crisis. Many of the loans are offered for sale as part of geographically-targeted "Neighborhood Stabilizing Outcome" pools, requiring that 50 percent of the loans within a pool that is purchased achieve a neighborhood-stabilizing outcome – which may include holding the property for rent for at least three years if the borrower and servicer are not able to avoid foreclosure.
DASP sales are typically broken into two or more sales – a "National Sale" which consists of loans from across the country, and a "Neighborhood Stabilizing Outcome" in which loans from geographically-targeted areas are sold.
In an update on HUD's single-family loan sale program in mid-March, the Department said that about half of the approximately 79,000 loans sold through the program since 2010 had been resolved via paying the loans current, forbearance agreements, paying the loan in full, a short sale, a third-party sale, or a deed-in-lieu of foreclosure.