HUD Changes Distressed Loan Sale Requirements

The Department of Housing and Urban Development (HUD) isrntweaking its bulk loan sales program to give distressed borrowers a better shotrnat staying in their homes.  HUD announcedrntoday that investors who purchase delinquent mortgages through the Department’srnDistressed Asset Stabilization Program (DASP) will have to delay foreclosuresrnfor one year after purchase rather than the six month hiatus that hadrnpreviously been required.</p

In addition loan servicers will have to evaluate allrnborrowers in the loan pool for eligibility for the HomernAffordable Modification Program (HAMP) or a similar loss mitigation program.  In the past the assessment of borrowers forrnloan modifications was encouraged but not required.</p

HUD is also making improvementsrnto the Neighborhood Stabilization Outcome (NSO) sales portion of DASP aimedrnat increasing non-profit participation.  Non-profitrnorganization will be given the first look at vacant properties, purchasers willrnbe allowed to re-sell notes to non-profits and there will be a non-profit onlyrnpool.</p

HUD will continue to require that purchasersrnof the geographically targeted neighborhood stabilization pools ensure that atrnleast 50 percent of the loans in a pool achieve outcomes to help hard hit areasrnavoid the neighborhood decline that comes with numerous vacant properties.  If the servicer and borrower are unable to preventrna foreclosure, the servicer must achieve some other neighborhood stabilizingrnoutcome such as holding the property for rental for at least three years.</p

“These changes reflect our desire tornmake improvements that encourage investors to work with delinquent borrowers tornfind the right solutions for dealing with the potential loss of their home andrnencourage greater non-profit participation in our sales,” said Genger Charles,rnActing General Deputy Assistant Secretary, Office of Housing. “The improvementsrnnot only strengthen the program but help to ensure it continues to serve itsrnintended purposes of supporting the MMI Fund and offering borrowers a secondrnchance at avoiding foreclosure.”</p

All of these changes will be subject tornstronger reporting requirements including tougher penalties for not complyingrnwith quarterly reporting responsibilities and a new requirement to report onrnborrower outcomes, even when a note is sold after the original purchase.</p

DASP allows pools of mortgages headed forrnforeclosure to be sold to qualified bidders and encourages them to work withrnborrowers to help bring the loan out of default. In many cases, this is a lessrnexpensive alternative to foreclosure and sale as a real estate-owned (REO)rnproperty.  An FHA servicer can place a loan into the loan pool if thernfollowing criteria are met:</p<ul type="disc"