HUD announced on June 8th and enhanced HFA note sale program part of Obama Administration effort to address target relief to hardest hit communities. The Distressed Asset Stabilization Program, an expansion of an FHA pilot program allows private investors to purchase pools of mortgages headed for foreclosure and charges them with helping to bring the loan out of default.
With this program it will help borrowers avoid foreclosure, finding ways to bring these loans out of default, which in turn helps the entire neighborhood by avoiding the decline in value that accompanies a distressed property.
An investor purchases the loan at a discount and then takes additional steps to help the borrower avoid default, whether through modifying their loan terms or helping them through a short sale, in order to maximize the return of sale.
The program offers a better shot for the struggling homeowner and lower losses to the FHA by addressing the growing back log of distressed mortgages. FHA will increase the number of loans available for purchase from approx 1800 each year to a quarterly rate of up to 5,000 and add a a new neighborhood stabilization pool to encourage investment in communities hardest hit by the foreclosure crisis. Additionally HUD will require that no more than 50% of loans within a purchase pool become REO properties and if the servicer and borrower are unable to bring the loan out of default then that servicer must hold the loan for at least three years.
Currently FHA inventory of REO properties available for sale is at its lowest level since 2009, at the same time the inventory of seriously delinquent loans is near an all time high. Many neighborhoods are still fighting to recover from the housing crisis. This new program will allow for more help to borrowers before they go through foreclosure and become a REO property.
For the full HUD article click here.
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