DASP helped reduce a backlog of federally insured defaulted loans stemming from the 2007–2011 financial crisis and was intended to protect the MMI Fund by paying insurance claims before the costly foreclosure process. In fiscal years 2010–2016, FHA auctioned off approximately 111,000 loans to private purchasers under DASP. HUD insures single-family mortgage loans and is authorized to sell defaulted loans under the National Housing Act. As a result, FHA risks recovering less for the MMI Fund in loan sales than if the loans had not been sold. Also, FHA set reserve prices (minimum acceptable price) based on the amount it expected to recover after loans completed foreclosure-yet GAO estimates that some of these loans will avoid foreclosure (see figure). One purchaser said that additional notice would allow it time to plan for the capital needed to bid. FHA could increase participation and MMI Fund recoveries in its auctions by communicating upcoming sales earlier. Note: Graphs do not include loans that were unresolved, paid-in-full, and in some other statuses.Ĭhanging some of FHA's auction processes may help the MMI Fund. Evaluating outcomes for sold loans against similar unsold loans could help FHA determine whether DASP is meeting its objective of maximizing recoveries to the Mutual Mortgage Insurance Fund (MMI Fund) and understand the extent to which DASP helps borrowers.įoreclosure and Foreclosure Avoidance Outcomes for Loans Sold through the Distressed Asset Stabilization Program and Similar, Unsold Loans, Fiscal Years 2013–2016 HUD policy states that the agency's evaluations isolate program effects from other influences. Also, loans sold in 2016 sales were less likely to experience foreclosure compared to unsold loans. For example, some purchasers' loans had higher probabilities of avoiding foreclosure, with borrowers making regular payments again by 24 months after the transfer of loans. However, GAO's analysis identified varying outcomes by purchasers and sales. GAO found that, in aggregate, sold defaulted loans were more likely to experience foreclosure than comparable unsold defaulted loans (see figure). Without checking loan eligibility closer to bidding, FHA risks selling ineligible loans, and borrowers could lose access to benefits.įHA does not evaluate outcomes for sold loans against similar unsold loans. GAO's analysis of fiscal year 2016 default data indicates about 2.67 percent of loans that FHA sold were ineligible based on length of delinquency or loss mitigation status. The status of delinquent loans can be fluid, and a change in eligibility status close to this date may not be detected. FHA relies on servicers to check eligibility a few weeks before and again after the bid date. After servicers submit loans for sale, FHA and its contractors concurrently check loan data for completeness, validity, and eligibility. The Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) uses multiple entities to check loan eligibility for the Distressed Asset Stabilization Program (DASP)-in which FHA accepts assignment of eligible, defaulted single-family loans from servicers in exchange for claim payments and sells the loans in competitive auctions.
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