Distressed Asset Stabilization Program

Written By: Glenn Michaels

The United States Department of Housing and Urban Development (HUD) has and is addressing the housing market’s “shadow inventory” and to target relief to communities experiencing high foreclosure activity. HUD announced that in the first quarter of 2013 10,000 to 15,000 distressed homes were sold by HUD through the DASP.

These loans were from certain targeted areas in Georgia, California, Florida, and Ohio. This was done to stabilize these areas and HUD was able to recover funds for the FHA fund.

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HUD is now accelerating the use of loan sales through DASP, selling severely delinquent mortgage loans insured by the Federal Housing Administration (FHA) through a competitive bidding process in which loan pools are sold to the highest bidder, including non – profit and community – based organizations.

This program accomplishes two very important objectives. It supports communities hardest hit by the housing crisis and it saves considerable money for FHA’s insurance fund. The results from September sales were strong which means investors of all kinds and communities are eager for this solution.

HUD is expected to sell at least 40,000 distressed loans over the next year, generally in quarterly sales, in an effort to reduce total claims cost and increase recovery on losses to FHA’s Mutual Mortgage Insurance (MMI) Fund. The results from the September sales were strong with a record participation among interested bidders.

The FHA is in the process of settling the transactions, but the FHA’s actuary announced that this brought in $1 billion in economic value to the MMI. In September one pool was approximately 5,300 of non – performing loans in six different national pools with a combined balance of $950 million. Later on in the same month 4,100 more loans totaling $770 million. The loans were from four geographic areas: Chicago, Illinois, Tampa, Florida, Phoenix, Arizona and Newark, New Jersey.

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DASP is a new concept for HUD and so far it appears to be a successful one for HUD and for the borrowers that were placed in this program.

A borrower is placed into this program when the mortgage servicer has a FHA mortgage with:
• At least 6 months delinquent;
• The servicer has exhausted all steps in the FHA loss mitigation process; and
• The servicer has initiated foreclosure proceedings.

Once the loan is sold the foreclosure is delayed for a minimum of 6 months for the new servicer to work out a payment arrangement. When these loans are sold they are usually purchased at a market price below the outstanding balance. The market price is usually well below the outstanding balance enabling the investor the incentive to help the borrower avoid foreclosure, including modifications that may include reduced principal balances.


About The Author

Frankie Lacy - As an active NAMP® member and a NAMU®-CMMU designee, Ms. Frankie Lacy is a 13-year mortgage industry veteran with extensive conventional mortgage underwriting experience. Frankie is also a mortgage instructor for Mortgage Underwriter University (www.MortgageUnderwriter.org). Topics of Frankie's expertise include: Fannie Mae, Freddie Mac, USDA Rural Housing, underwriting to investor overlays, self-employed borrowers, personal and business tax return analysis, rental income, condos/co-ops/PUDs, and more. Frankie is a Davenport University graduate with a degree in Business Administration. If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.

 


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