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The FHA Distressed Asset Stabilization Program

Sarah Edelman, Julia Gordon, and Aashna Desai provide recommendations for how the Federal Housing Administration can better help neighborhoods and homeowners while still saving money for taxpayers.

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idea light bulbIn the summer of 2012, the Federal Housing Administration, or FHA, announced it was launching a new program to auction off pools of delinquent mortgages that had not yet gone through foreclosure but for which foreclosure was inevitable.

According to FHA, selling these loans prior to foreclosure would save the agency money and provide a better financial outcome for taxpayers. Selling would also provide homeowners more options than were available under FHA rules due to statutory limitations, helping families and stabilizing neighborhoods. In short, the Distressed Asset Stabilization Program, or DASP, “creates the opportunity for everyone—the homeowner, the new mortgage holder, FHA and the community—to walk away a winner.”

Since September 2012, FHA has made available for auction nearly 100,000 loans. According to the Department of Housing and Urban Development’s, or HUD’s, new report on DASP outcomes, the program has helped reduce FHA’s loss rates from 63.5 percent in the first quarter of 2010 to 52.9 percent in the second quarter of 2014, although the report does not disaggregate the impact of a variety of FHA policy changes, including improvement of its loss-mitigation options for servicers. Additionally, bids on these auctions have risen from approximately 40 percent of the loans’ unpaid principal balances to an average closer to 60 percent.

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