STATEMENT: CAP’s Sarah Edelman Commends the FHA’s Improvements to the Distressed Asset Stabilization Program

Washington, D.C. — Today, the Federal Housing Administration, or FHA, announced a set of policy changes to the Distressed Asset Stabilization Program, or DASP, which is the agency’s program for selling nonperforming mortgage loans. Many of the changes reflect policies that the Center for American Progress has advocated for as critical protections for homeowners and communities.

According to the FHA, the agency will now require entities purchasing loans through DASP to consider borrowers for principal reduction, a process that lowers a homeowner’s mortgage balance when a homeowner owes much more on their home than it is worth. The FHA will also limit interest rate increases on borrower’s loans and prevent investors from walking away from low-value properties. The agency will better prioritize DASP sales to nonprofits and local governments and will also provide better data on program outcomes.

Sarah Edelman, Director of Housing Policy at CAP, issued the following statement:

The FHA’s announcement signals significant improvements to the agency’s nonperforming loan auctions in ways that will benefit homeowners, neighborhoods, and taxpayers.

By requiring investors to offer loan modifications that are more affordable and sustainable, the FHA can give homeowners a more powerful toolkit for staying in their homes. Furthermore, by preventing loan purchasers from abandoning vacant properties, the agency will help stem the blight these properties cause in their surrounding communities. New policies that encourage sales to mission-oriented nonprofit organizations and local governments will help ensure that more distressed loans are handled with neighborhood stabilization in mind.

The policies announced today are a promising step toward more responsible loan auctions. The FHA should move quickly to implement these changes and continue its work to optimize the program for homeowners, neighborhoods, and taxpayers.

Related resources:

• Protecting Communities on the Road to Recovery by Sarah Edelman, Michela Zonta, and Shiv Rawal
• Is the FHA Distressed Asset Stabilization Program Meeting Its Goals? by Sarah Edelman, Julia Gordon, and Aashna Desai
• Consensus Recommendations Letter to FHA Commissioner Biniam Gebre by the Center for American Progress and others
• How Auctioning Troubled Mortgages Can Boost the Housing Recovery by Sarah Edelman and Julia Gordon (American Banker)

For more information on this topic or to speak with an expert, contact Allison Preiss at [email protected] or 202.478.6331.