FHA Attempting To Aid Distressed Homeowners


In the latest effort to reduce the foreclosure backlog and help homeowners stay in their homes, the Federal Housing Administration (FHA) is reaching out to investors. The agency’s new Distressed Asset Stabilization Program will help homeowners avoid foreclosure by selling troubled loans to investors willing to abide by the program rules.

SEE ALSO: FHA Kiddie Condos: College Housing And Investment

Properties Impacted

Over 9,000 FHA loans at risk of foreclosure willtransfer to qualified winning bidders. Approximately 3,000 to 4,000 of these loans are located in Chicago, Phoenix, Newark and Tampa, with the remaining loans scattered throughout the country. Since the program was launched in June 2012, investor interest has expanded, which is prompting the FHA to offer a larger number of distressed properties during their next sale.

Program Qualifications

Investors who are willing to sign a confidentiality agreement and meet the program’s strict guidelines can get an opportunity to bid on loans. They must also agree to delay foreclosure for an additional six months, while they work with the occupant to prevent the misfortune from occurring. To avoid compounding financial problems, the program requires investors have at least $5 million in capitalbefore they can bid.

How the Program Helps Homeowners

If your delinquent mortgage is part of the Distressed Asset Stabilization Program, you have a second chance to avoid foreclosure and remain in your home. Because the program is specifically designed to reduce the number of REOs and foreclosures on the market, investors are required to make foreclosure prevention a priority, and can allow no more than 50 percent of their loans to fall into REO status. This puts added pressure on them to utilize all of the foreclosure prevention programs available to keep you in your home. These programs include:
  • Loan modifications
  • Deeds-in-lieu (with leasebacks to the owner)
  • Short sales to owner occupants
  • Sale to approved Neighborhood Stabilization Program (NSP) grantees
If after exhausting all of these options, the investor is still unable to avoid foreclosure, the FHA will require them to rent the property for three years. And, because most of these investors aren’t in the rental business, this is a last resort that they want to avoid. Under the Distressed Asset Stabilization Program, your mortgage will not succumb to foreclosure until you’re at least six months delinquent, and the servicer has exhausted every option available to help you keep your home. If nothing else, this will buy you time to correct your mortgage delinquency and avoid default.

SEE ALSO: Looking For A New Bank? Three Scenarios That Aren’t Worth It

Date of original publication:
Updated on: November 10, 2015

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