HUD created the Distressed Asset Stabilization Program (DASP) in 2010 as a way to protect the interests of taxpayers. The Department recently proposed changes to the program that critics say would move the program away from its open and competitive bidding process and reduce private sector investor participation, negatively impacting both the fundamental purpose of the program and taxpayers alike.
The House Financial Services Committee held a hearing on Wednesday to determine the effect of those changes to DASP on taxpayers—and whether or not those changes were politically motivated, as some critics have accused HUD Secretary Julián Castro of making the changes to appease advocacy and civil rights groups, some of which claimed Castro should disqualify himself from the list of candidates for Vice President because of what they perceived as shortcomings to DASP.
DASP began as a direct sale pilot program that allows pools of Federal Housing Administration (FHA) mortgages headed for foreclosure to be sold to qualified bidders and encourages them to work with borrowers to help bring the loan out of default. Since then, more than 105,000 loans have been sold through DASP, the majority of them to private investors.
“There has probably been no greater public policy mistake in housing than Washington trying to put people into homes they cannot afford to keep,” said Rep. Jeb Hensarling (R-Texas), Chairman of the Committee, in his opening statement at Wednesday's hearing. “It was clearly the number one reason our nation suffered the number two worst financial crisis in our history.”
He continued on stating that the changes proposed to DASP, in his opinion, breached the fiduciary duty to taxpayers by offering lower priced preferential bidding options to non-profits and local governments. Hensarling said that he believes these bidders are in fact political allies and by punishing private purchasers if they get stuck with a vacant property, taxpayer recoveries through the DASP will be reduced, further exacerbating the financial stresses placed on the FHA. Hensarling believes that he is witnessing “the gradual transformation of FHA from the mutual insurance program designed to help low income, moderate income, and first time homebuyers, into a social program designed to help special interest groups.”
To conclude his statement before the committee hearing Hensarling stated, “It is surely worth repeating that there is no better foreclosure mitigation program than a job with growing wages and a bright future. Also, a bankrupt FHA and a bankrupt America can help no one stay in their home, much less afford them an opportunity to buy one in the first place.”
Following Hensarling’s remarks, Ranking Member Maxine Waters (D-California) read her opening statement and criticized Republicans for “hijacking a very important topic in order to launch attacks on the Secretary, and the Department, rather than substantively examine the issues impacting working people in this country.”
Waters highlighted the need for changes to the HUD’s Distressed Asset Stabilization Program so that it can better serve borrowers and remarked that HUD “has proposed some modest changes to help ensure that individuals are better protected when their loans are sold, and to help level the playing field when community-based organizations want to place bids.” Waters stated she felt Republican attempts to thwart improvements to the program were only to protect the interests of large corporations.
To conclude her statement, Waters stated, “Make no mistake, this is not only an effort to impair HUD and other agencies from doing their jobs, but also to distract the American public from the real policy issues these agencies are working to address each day.”
Castro, the lone witness at the hearing, began his opening remarks by thanking the committee for the opportunity to discuss the initiative, DASP, which he felt “is making an important, positive difference for American homeowners and their neighborhoods.”
Castro stated that he believes since the Great Recession, the national housing market has made great progress and he believes HUD to have been beneficial in this turnaround by taking a number of steps to ensure the housing market remains positive for the economy.
He continued by stating that since the program’s launch, HUD has modified DASP many times. In regards to the most recent changes to the program, Castro stated that he believes the changes are not politically motivated.
“All of the program changes we will discuss today were designed with input from a broad range of stakeholders, all were assessed for how well they would fulfill our goal of strengthening neighborhoods, and all have been implemented with this Committee’s counsel in mind—including your direction, Chairman Hensarling, that any changes to DASP further protect the health of the MMI Fund,” said Castro.