Today, Congresswoman Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee, released a statement on a Government Accountability Office (GAO) report entitled, “Federal Housing Administration: Opportunities Exist to Improve Defaulted, Single-Family Loan Sales.” (GAO-19-228).
The GAO report was requested in 2016 by Chairwoman Waters to ensure the Federal Housing Administration’s (FHA’s) Distressed Asset Stabilization Program (DASP) is serving its dual purpose of helping FHA borrowers struggling to pay their mortgages and minimizing losses to the FHA. DASP has been operating as a demonstration program to date, and this GAO report follows a recent advance notice of proposed rulemaking and request for public comment from the Department of Housing and Urban Development (HUD), signaling that the agency is looking to formalize the program. The GAO report’s findings show that HUD will need to make significant reforms to DASP in formalizing the program’s requirements in order to ensure that it does not continue to harm borrowers.
Since 2010, DASP has been a vehicle for FHA to sell thousands of mortgage notes via auction.
“Following the devastating 2008 financial crisis, the Federal Housing Administration’s Distressed Asset Stabilization Program allowed private investors to purchase pools of FHA mortgages at a substantial discount with insufficient requirements and oversight in place to ensure that struggling borrowers were getting the best outcomes possible. According to GAO, the FHA has auctioned off approximately 111,000 loans to private purchasers under this program between fiscal years 2010-2016.
“My colleagues and I have continued to express concerns that the FHA has acted in haste and created a program that infringes on the rights of homeowners to access the protections that come with paying into the FHA insurance program, allows private investors that purchase mortgages through DASP to evade their responsibilities under the program to help borrowers, and prevents qualified nonprofits that are invested in the well-being of borrowers and communities from competing effectively in DASP sales.
“This GAO report confirms that our longstanding concerns are warranted and the Committee is drafting a legislative solution to make sure the FHA is protecting communities that are still recovering from the foreclosure crisis.”
The GAO report found that:
- FHA is not adequately checking for DASP eligibility. In 2016, approximately 2.65 percent of loans sold were ineligible.
- FHA is not properly assessing whether the program is actually assisting borrowers, as it does not evaluate outcomes for sold loans against similar unsold loans. When GAO performed an analysis to compare outcomes for sold loans against similar unsold loans, it was determined that sold defaulted loans were more likely to experience foreclosure than comparable unsold, defaulted loans.
The GAO made nine recommendations to FHA intended to improve the DASP program including the establishment of specific timeframes to check loan eligibility, changing some of FHA’s auction processes and evaluating loan outcome data.
Click here to view the full report.