Investors of distressed Federal Housing Administration loans are facing tougher requirements that will benefit borrowers and avoid neighborhood blight.
The Distressed Asset Stabilization Program was launched by the Department of Housing and Urban Development in 2010 and enhanced in June 2012.
It was intended to reduce the shadow inventory of distressed mortgages while also providing struggling borrowers with an opportunity to save their homes.
Changes made to the program in April 2015 were designed to extend the amount of time that investors must wait to liquidate the distressed assets.
On Thursday, HUD announced a series of changes that are designed to help distressed borrowers and avoid neighborhood blight.
Buyers of the loans will now be required consider principal forgiveness
as the first option to borrowers being evaluated for a modification.
Interest-rate increases will be limited to 1 percent per year after the five-year fixed-rate period ends. The move is reportedly consistent with the Home Affordable Modification Program.
Loan purchasers will now be prohibited from abandoning lower-value properties. The change was made to prevent neighborhood blight.
Qualified non-profit organizations will be allowed to bid on a partial pool of notes, up to five percent of a national pool, and to pay the reserve price. HUD said the new alternative provides more opportunity for non-profit organizations and local governments to participate in the program.
In order to
provide greater education and awareness among qualified government entities and local governments, FHA is providing new standard guidance on the sale of distressed mortgages directly to pubic entities.
In addition, FHA will enhance
efforts to identify and offer loans in targeted distressed areas to non-profits and local governments — a move that is expected to help vulnerable neighborhoods maintain more stable communities.
