by Broderick Perkins
(6/14/2012) - A new U.S. Department of Housing and Urban Development (HUD) distressed mortgage sale will give struggling homeowners in hard hit communities more time to save their homes from foreclosure.
The new deal, the Federal Housing Administration's "Distressed Asset Stabilization Program," is an expansion of an FHA pilot program that allows private investors to purchase pools of mortgages headed for foreclosure - provided the purchasers help bring the loans out of default.
Under the program, FHA sells FHA-insured notes to investors at predetermined prices, typically below the outstanding principal balance.
Once a loan is sold, the clocks stops on foreclosure for six months while the investor steps in to help the borrower avoid foreclosure through a modification, short sale or other workout.
The new program is part of the Obama Administration's growing efforts to reduce HUD's shadow inventory and send relief to communities hardest hit by the housing crisis.
Easier to qualify for than conventional mortgages, low-down payment FHA mortgages virtually replaced toxic subprime loans and the agency has suffered reserve losses, leaving HUD with an estimated 700,000 bad loans.
The agency was unloading the loans at the rate of about 1,800 year, but under the new plan, HUD will boost that number to 5,000 a quarter or about 20,000 a year.
"Throughout this crisis, we've turned to the FHA, which since President Obama took office, has helped more than 1.3 million families stay in their homes through loss mitigation and early delinquency interventions," said HUD Secretary Shaun Donovan during the plan's recent announcement at the 2012 Clinton Global Initiative America meeting in Chicago.
"But there are still thousands of FHA borrowers - the vast majority of whom received their loans before President Obama took office - who are severely delinquent today - who have exhausted their options and could lose their homes in a matter of months," Donovan added.
Ironically, because the program doesn't begin until September, some of those homeowners could be out of luck.
An existing servicer can place a loan into the pool of loans for sale if the following criteria are met:
The borrower must be at least six months delinquent on their mortgage. This program, like so many others, leaves struggling homeowners who are paying their mortgage on time, again, twisting in the wind.
The servicer has exhausted all steps in the FHA loss mitigation process
The servicer has initiated foreclosure proceedings.
The borrower is not in bankruptcy.
A similar program is underway at the Federal Housing Finance Agency which is trying to unload a quarter million REO properties held by Fannie Mae and Freddie Mac.
The FHA has other like-minded programs afoot, including several extensions of a waiver of its "anti-flipping rule" which once prohibited insuring a new mortgage on a home owned for only 90 days and then resold.
The waiver is designed to help keep foreclosures moving through the pipeline and bolster its reserves.
Effective June 11, the FHA slashed mortgage insurance premiums on refinanced FHA loans under it's Streamlined Refinancing Program to help struggling homeowners refinance to lower rates.
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