Consumer Finance Insights
April 27, 2015

HUD Announces Plan to Reform Distressed Asset Stabilization Program

On April 24, 2015, the U.S. Department of Housing and Urban Development (HUD) announced that it would reform its Distressed Asset Stabilization Program (DASP), requiring purchasers to take stronger steps to ensure that homeowners are given further options to avoid foreclosure.

DASP was set up in 2010, to pool distressed loans and encourage successful purchasers to work with delinquent borrowers to avoid foreclosure. An FHA servicer can place severely delinquent loans in the pool if the borrower is at least six-months in arrears and all FHA loan modification options had been exhausted. Purchasers of DASP-pooled loans must ensure that 50% of the pool remains performing, “by any means necessary.” Recently, DASP has come under some scrutiny by housing advocates (see, e.g., this report by the Los Angeles Times, this post by the Hill, and this letter written to HUD by housing advocates), which may have spurred this reform. Highlights of the proposed changes are as follows:

  • Once sold, DASP-pooled loans cannot be foreclosed by the purchaser for one year (presently, the moratorium is six months);
  • Servicers will be required to review DASP-pooled loans for the Home Affordable Modification Program and other loss mitigation alternatives (presently, loan servicers are merely encouraged to do this);
  • Stronger reporting requirements and stiffer penalties for failing to comply with quarterly-reporting requirements (specifics of which are presently unavailable from HUD);
  • New obligations to report on borrower outcomes, even if the promissory note is transferred; and
  • Increase nonprofit participation regarding certain segments of DASP-pooled loans by: (1) prioritizing non-profit purchasers; (2) creating non-profit only loan pools; and (3) allowing purchasers to re-sell promissory notes to non-profits.

Servicers should pay attention to these proposed changes, because the new requirements will start to come into effect beginning in June 2015, when HUD plans to sell the first pool of loans under the revised rules. LenderLaw Watch will monitor developments with the DASP reform, and will bring readers more details as they become available.