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October 10, 2014
Only 10% of Distressed Asset Stabilization Loans Require Neighborhood Stabilization
    by Robert Kropp

A report by the Center for American Progress finds some benefits to homeowners in the Federal Housing Agency program, but recommends that many more be included in the Neighborhood Stabilization pool. Second of a two-part series.


As reported this week at SocialFunds.com, the Federal Housing Agency's Distressed Asset Stabilization Program (DASP) came in for some harsh criticism in a report from the Center for Popular Democracy. The DASP program, whose priorities include the preservation of homeownership and the creation of affordable rental housing.

“The FHA has designed DASP in such a way as to severely limit its effectiveness in helping hard-hit neighborhoods recover from the housing crisis,” the report charges, as the vast majority of mortgages are being bought up by for-profit firms that often securitize them without regard to the best interests of affected communities.

A second report, published by the Center for American Progress and entitled Is the FHA Distressed Asset Stabilization Program Meeting Its Goals?, assesses DASP in a somewhat more positive light, but sees room for improvement that are similar to those in the Center for Popular Democracy report.

“Nearly 2 million homeowners remain at risk of foreclosure because of reduced income, underwater loans, or the failure of mortgage servicers to assist them properly,” the Center for American Progress report states. “Through its Distressed Asset Stabilization Program, FHA is attempting to protect taxpayers by reducing losses on defaulted loans and provide thousands of borrowers headed to foreclosure with a second chance to stay in their homes or to leave them in a way that is less devastating both financially and emotionally.”

“Of the 50 percent of DASP loans that have reached resolution,” the report found, 34 percent have avoided foreclosure, including the 11 percent of loans that are classified as 'reperforming,' which means that homeowners are again paying their mortgages regularly.”

However, as the Center for Popular Democracy also emphasized, the geographically concentrated Neighborhood Stabilization Outcome (NSO) pools, which require buyers of the mortgages to contribute to the stabilization of the neighborhoods hit hardest by foreclosures, has been far more effective in allowing homeowners to keep their properties, the Center for American Progress found.

“These numbers are significantly higher for the pools with specific neighborhood stabilization requirements, in which 58 percent have avoided foreclosure and 23.5 percent are reperforming,” the report states. “the pools with community stabilization requirements appear to be significantly more advantageous for homeowners and communities and sell at comparable prices to pools with fewer requirements.”

FHA “should...consider how to expand the number of NSO pools, increase nonprofit participation in the program, ensure that mortgage servicers do not abuse the program, and expand data collection and publication,” the report concludes.

“Right now, however, the program only places such requirements on about 10 percent of the loans it sells,” the Center for American Progress stated. “With investor demand for nonperforming loans growing, FHA is well-positioned to ask more of buyers while continuing to protect taxpayers.”

 

 
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