On April 24, 2015, the U.S. Department of Housing and Urban Development (“HUD”) announced changes it intends to make to its Distressed Asset Sale Program (known as DASP) which will affect mortgage servicers who purchase nonperforming home mortgage loans.
Presently, HUD requires participants in DASP to forego foreclosures for six months from acquiring the loan. But under the new guidelines, DASP would also require mortgage servicers to determine whether troubled borrowers were eligible for the Home Affordable Modification Program or other loss mitigation measures and forgo foreclosure for one year.
DASP sales allow servicers of FHA-backed mortgages to pool distressed loans for sale to other investors and servicers, who are then expected to engage in communications with borrowers aimed at avoiding default. These distressed loans generally consist of loans that are at least six months in arrears and that have no loss mitigation options available. At least 50 percent of the mortgage loans purchased in DASP transactions by a mortgage servicer must either be modified, held for rental, sold to an owner-occupant, or resolved through some other approved anti-foreclosure mechanism within four years of the purchase.
HUD’s new requirements reflect a desire to encourage investors and mortgage servicers to work with delinquent borrowers to find alternatives to foreclosure. These changes will be in effect as of the June 2015 distressed mortgage auction conducted through DASP.