On the last working day of the previous week, the Department of Housing and Urban Development in the US announced that they are on the way to expanding a major foreclosure prevention program called the Distressed Asset Stabilization Program which will help a number of homeowners save their properties from foreclosure.
According to this program, private investors will be allowed to buy millions of existing delinquent loans in the country under certain rules and regulations. The most important condition is that these investors have to assist the distressed homeowners in living in those homes and gradually make them current on their payments.
This program will help the Federal Housing Administration sell their rigorously delinquent notes. These notes will be put up for sale at pre-determined market rates which are normally much lower than the outstanding balance on these notes. This strategy will help to control the flood of foreclosed real estate owned (REO) houses. Starting from September, each quarter the agency plans to sell 5,000 mortgage properties through this method.
A statistical report for the month of May revealed a drop in new foreclosure filings but there was a spike in the number of delinquent mortgages. This agency stated that the implications of this will affect not only those who are on the verge of foreclosure but also those homeowners who are residing in regions with high rates of foreclosure.
According to Shaun Donovan, Secretary at HUD, “While our housing market has momentum we haven’t seen since before the crisis, there are still thousands of FHA borrowers who are severely delinquent today—who have exhausted their options and could lose their homes in a matter of months. With this program, we will increase by as much as ten times the number of loans available for purchase while making it easier for borrowers to avoid foreclosure.”
Foreclosure proceeding of any home will be held up for nearly six months once any investor buys the delinquent note. During this period, the servicer will help the homeowner to get through the hurdles of foreclosure and help them save their property. Investors are allowed to buy these loans at a concession rate and they must help homeowners save their properties either through loan modification or through a short sale to ensure maximum returns for them.
In a written notification, the Acting Commissioner at FHA, Carol Galante stated, “The Distressed Asset Stabilization Program offers a better shot for the struggling homeowner and lower losses to the FHA. By addressing the growing back log of distressed mortgages, FHA is helping to mitigate the negative effects of the foreclosure process as part of the Administration’s broader commitment to community stabilization.”
Photo by Renjith Krishnan.
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