U.S. housing officials are expanding help to borrowers severely delinquent on loans insured by the Federal Housing Administration as part of a note sale program to private investors.
The Distressed Asset Stabilization Program allows private investors to purchase pools of mortgages headed for foreclosure, according to an announcement today from U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan and Acting FHA Commissioner Carol Galante.
The investors are required to help bring the loan out of default. A new mortgage servicer will assist borrowers in finding “affordable mortgage solutions or achieve a favorable resolution,” a HUD statement said.
“While our housing market has momentum we haven’t seen since before the crisis, there are still thousands of FHA borrowers who are severely delinquent today – who have exhausted their options and could lose their homes in a matter of months,” Donovan said.
The program will increase by as much as ten times the number of loans available for purchase, Donovan said.
Getting the loans out of default also helps the hardest hit neighborhoods of the foreclosure crisis, he said.
Under the program, FHA-insured notes are sold competitively at a market-determined price, generally below the outstanding principal balance.
The investor purchases the loan at a discount and then takes additional steps to help the borrower avoid default, whether through modifying loan terms or helping facilitate a short sale, in order to maximize the return on the sale.
Foreclosure is delayed for a minimum of six additional months after the note is sold.
The FHA note sales program began as a pilot in 2010 and has resulted in the purchase of more than 2,100 single family loans to date.
A servicer can place a loan into the loan pool if the following criteria are met:
- The borrower is at least six months delinquent on their mortgage;
- The servicer has exhausted all steps in the FHA loss mitigation process;
- The servicer has initiated foreclosure proceedings; and
- The borrower is not in bankruptcy.