New FHA rules created to protect at-risk homeowners

WASHINGTON – July 1, 2016 – HUD announced changes to its Distressed Asset Stabilization Program (DASP), which sells severely delinquent FHA mortgages to private investors. HUD says the new rules should protect homeowners from “payment shock.”

According to HUD, “certain families with distressed mortgages insured by the Federal Housing Administration (FHA) may soon be eligible for a reduction of their outstanding loan amounts should their mortgages be sold through DASP.”

On average, mortgages sold through DASP are 29 months delinquent at the time of the auction.

Additional details on the latest enhancements are posted on HUD’s website.

“While thousands of homeowners avoided foreclosure through this note sales program, we continue to explore new ways to help these families and to offer more opportunities for public-minded organizations to have a seat at the table,” says Ed Golding, HUD’s Principal Deputy Assistant Secretary for the Office of Housing.

FHA’s new DASP enhancements include:

  • Principal reduction/capital arrearage forgiveness
    Principal forgiveness is the first option investors must consider when evaluating borrowers 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
  • Walk-away prohibition
    FHA prohibits 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
    Qualified non-profit organizations may now bid on a partial pool of notes – up to five percent of a National Pool – and to pay the reserve price. This offers another opportunity for non-profit organizations and local governments to participate in DASP, HUD says
  • Streamline direct sales to 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 non-profits and local governments
    FHA says it will enhance its efforts to identify and offer loans in targeted distressed areas to non-profits and local governments

FHA strengthened DASP last year, too. It expanded a foreclosure moratorium from six-to-12 months, requiring purchasers of these distressed mortgages to suspend any foreclosure action. It also provided advanced notice of pending sales and extended the due diligence periods; offered a “first look” opportunity for non-profits to purchase vacant properties; and created specific pools of mortgages exclusively for non-profit organizations and local governments.

© 2016 Florida Realtors®

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