The House Financial Services Committee held a hearing on July 13 to examine the recently proposed adjustments to HUD’s Distressed Asset Stabilization Program (“DASP”). HUD Secretary Julián Castro was the sole witness.
DASP, first implemented in 2010, allows pools of severely delinquent mortgages insured by the Federal Housing Administration (FHA) to be sold to investors. Buyers are then responsible for resolving the delinquent mortgages through short sales, mortgage modification, or foreclosure. On June 30, HUD proposed changes to DASP that, among other things, would allow buyers to consider principal reduction before foreclosure, would slightly increase the number of DASP sales to local governments and qualifying non-profits, and would give borrowers a greater chance to stay in their homes.
Republicans argued that these adjustments would no longer maximize potential profits generated through a competitive bidding process. Members expressed concerns that the potential for reduced profits would, in turn, diminish recoveries to the Mutual Mortgage Insurance Fund (MMIF) and negatively impact taxpayers. Committee Chair Jeb Hensarling (R-TX) described HUD’s adjustments as a “breach of its fiduciary duty to hardworking taxpayers.”
Secretary Castro responded that not only are nonprofits many times more likely to keep borrowers in their homes, they currently constitute only 2% of buyers and receive similar rates during DASP bidding as for-profit companies. Secretary Castro also disagreed “that somehow the ‘taxpayers’ are different from these folks who are living in [DASP] neighborhoods and homes,” stressing to Committee members that “these are your taxpayers.”
Ranking Member Maxine Waters (D-CA) lauded HUD’s adjustments to the DASP program. Noting that non-profit investors are generally far more experienced in community development than private investors, she commended the proposed increase in nonprofit participation. Waters also reiterated that DASP’s purpose is “to help ensure that individuals are better protected when their loans are sold,” and admonished her Republican colleagues for pushing “the FHA to act like the same private mortgage companies that cratered the economy [in 2008] and focused exclusively on the bottom line.”
Waters and others noted that “the majority of loans sold through DASP are attached to properties and communities particularly hard-hit by the housing crisis or that are home to racial and ethnic groups that have lost a disproportionate share of wealth throughout the foreclosure crisis.” She and others argued repeatedly that “the outcomes of these loans could make a significant difference in the pace of recovery for these vulnerable communities.”
Watch the hearing at: http://bit.ly/29ETxDH