FHA Cites ‘Significant Improvements’ to Distressed Notes Sales Program


HUD announced a series of enhancements to the Department’s Distressed Asset Stabilization Program that would have purchasers of severely delinquent mortgages offer qualified borrowers principal reductions and protection from “payment shock.”  

HUD said certain families with distressed mortgages insured by the Federal Housing Administration could 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.  

The 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.

–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 5 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. 

–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.  

The announcement can be found at http://portal.hud.gov/hudportal/documents/huddoc?id=Final_DASP_Fact_Sheet.pdf