HUD Changes Rules For Distressed Asset Stabilization Program

Posted by Patrick Barnard on April 27, 2015 No Comments
Categories : Mortgage Servicing

Investors that purchase pools of distressed loans through the U.S. Department of Housing and Urban Development's (HUD) Distressed Asset Stabilization Program (DASP) are now required to delay foreclosure for a year, as opposed to the previously required six months, HUD has announced.

This way, servicers will have more time to evaluate all borrowers for the Home Affordable Modification Program or similar loss mitigation program, HUD says in a release.

In addition, HUD is changing its rules for its Neighborhood Stabilization Outcome sales program, which is part of the DASP. Specifically, when investors sell the pools of loans, they must first be marketed to nonprofits, ahead of other investors. This includes giving nonprofits a first look at vacant properties, allowing purchasers to re-sell notes to nonprofits, and offering a nonprofit-only pool.

As HUD explains in its release, servicers were previously allowed to foreclose after six months if a loan was not performing. What's more, they were encouraged – but not required – to assess a borrower's qualifications for loss mitigation programs.

The DASP already requires investors and servicers to take whatever means necessary to ensure that 50% of the loans in a pool are performing at any given time. This is to ensure that entire neighborhoods do not fall into severe blight or have a disproportionately high number of vacant properties.

The rule changes come a week after a group of nonprofits sent a letter to federal officials expressing their concern that some investors are directing their servicers to fast track the foreclosure process for the sake of avoiding long and costly foreclosure timelines. The suspected ‘pro-foreclosure campaigns’ are resulting in fewer homeowners having a chance at loss mitigation, the groups allege.

In their letter addressed to Mel Watt, director of the Federal Housing Finance Agency, Jack Lew, secretary of the U.S. Department of the Treasury, and Richard Cordray, director of the Consumer Financial Protection Bureau, the group says they are ‘concerned by recent media reports’ that investors are ‘pushing servicers to foreclose on borrowers rather than offering them loan modifications and principal reductions.’

‘These are many of the same Wall Street investors that contributed to the mortgage crisis and have continued their unscrupulous practices,’ the letter from HomeFree USA, the National Community Reinvestment Coalition and the National Community Stabilization Trust, among others, states. ‘Once again, they are putting their own economic self-interests above our communities and the sustainable growth of our nation's economy.’

It should be noted, however, that investors that buy pools of distressed loans through HUD's DASP are committed to ensuring that those loans become re-performing and/or that the borrowers are offered appropriate loss mitigation options, such as loan modification or short sale.

In HUD's April 24 release, Genger Charles, acting general deputy assistant secretary in the office of housing, says the rule 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 nonprofit participation in our sales.’

‘The improvements not only strengthen the program, but help to ensure it continues to serve its intended purposes of supporting the [Mutual Mortgage Insurance] Fund and offering borrowers a second chance at avoiding foreclosure,’ Charles adds.

In addition, investors and servicers will be subject to stronger reporting requirements, including tougher penalties for not complying with quarterly reporting responsibilities and a new requirement to report on borrower outcomes, even when a note is sold after the original purchase, HUD says.

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