FHA Changes Loss Mitigation Policies
But unplanned events happen--people get laid off, experience financial setbacks, etc. Borrowers in danger of missing payments on their homes should contact the lender as soon as financial difficulty is known to make arrangements, but in some cases FHA borrowers get in danger of being foreclosed upon.
On Friday, April 24 2015, the FHA and HUD issued a press release detailing changes to the Distressed Asset Stabilization Program or DASP. According to HUDNo 15-048, “In an effort to better serve homeowners looking to avoid foreclosure, loan servicers will now be required to delay foreclosure for a year and to evaluate all borrowers for the Home Affordable Modification Program (HAMP) or a similar loss mitigation program.”
That is an important development for borrowers who could be at risk of losing the home purchased with an FHA loan or refinanced by an FHA refi loan. FHA and HUD also announced other changes:
“HUD is making additional improvements to the Neighborhood Stabilization Outcome (NSO) sales portion of DASP which are aimed at increasing non-profit participation. Updates include giving non-profits a first look at vacant properties, allowing purchasers to re-sell notes to non-profits, and offering a non-profit only pool.”
That is a major alteration from the old standard, which permitted lenders to foreclose on a home, “6 months after they received the loan”.
The press release adds that lenders were encouraged, “to assess a borrowers qualifications for loss mitigation programs.” Lenders were not required to do so under the old program. The previously mentioned requirement that a lender assess delinquent borrowers for suitability for a home loan modification program did not include a start date or “effective as-of” date, but it’s likely FHA/HUD will publish more information on this new program that includes that information in the coming weeks.
“These changes reflect our desire to make improvements that encourage investors to work with delinquent borrowers to find the right solutions for dealing with the potential loss of their home and encourage greater non-profit participation in our sales,” says Genger Charles, Acting General Deputy Assistant Secretary, Office of Housing, who expects the changes to “not only strengthen the program but help to ensure it continues to serve its intended purposes of supporting the MMI Fund and offering borrowers a second chance at avoiding foreclosure.”
The foreclosure process, as a result of the new changes, will be subject to stronger reporting requirements that include what the FHA terms, “tougher penalties for not complying with quarterly reporting responsibilities and a new requirement to report on borrower outcomes, even when a note is sold after the original purchase.”
Borrowers are encouraged to look into loss mitigation options as early as possible when financial difficulty is known or anticipated--doing so can help save the home and keep the range of foreclosure avoidance options as diverse as possible.
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