Requirements Stiffened on FHA Distressed Loan Sales

The Department of Housing and Urban Development originally launched its
Distressed Asset Stabilization Program in 2010. The program was enhanced in June 2012.

According to HUD, the program was intended to reduce the shadow inventory of distressed loans while also providing struggling borrowers with an opportunity to save their homes.

Loans sold through the program are required to be at least six months past due.

On Friday, HUD
announced changes to the program that are intended to increase non-profit participation.

According to the agency, the amount of time that servicers will need to wait before foreclosing has been extended to a year from six months.

In addition, borrowers will need to be evaluated for the Home Affordable Modification Program or other loss-mitigation programs.

HUD said that non-profits will now be able to have the first look on vacant properties. They will also be able to acquire note purchased by investors.

In addition, a non-profit only pool is being offered.

“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,” Genger Charles, acting general deputy assistant secretary, Office of Housing, said in the news release. “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.”

HUD noted that all of the changes
will be subject to stronger reporting requirements and tougher penalties for not complying with quarterly reporting requirements. Also, a new requirement will have servicers reporting on borrower outcomes — even when a note is sold after the original purchase.