Community groups are alleging that a program is short-changing borrowers and neighborhoods that have already been hit hard by foreclosures. The program, called Distressed Asset Stabilization Program (DASP), designed in an effort to prop up the Federal Housing Administration.
Recently demonstrators in downtown Los Angeles and 10 other cities across the nation took to the streets to protest a 2-year-old program that bundles government-insured loans that are reaching foreclosure and auctions them to the highest bidders including hedge funds, private equity firms and other Wall Street-type investors. They are urging federal regulators to reform it.
Bargain-rate Houses for Investment Firms
An estimated 200,000 bargain-rate homes have been bought up by large real estate trusts and investment firms in the last two years to turn them into rental properties. In some cases, these trusts and firms have elbowed out first-time home buyers. Some of the firms are even buying out the loans before the properties even enter foreclosure. They then turn around and collect the mortgage payments, or sell the homes after they have fully entered foreclosure.
Since 2012, the FHA has sold nearly 100,000 of these troubled mortgages to bidders looking to profit off of collecting mortgage payments or even foreclosing on the homes and then profiting off of selling or renting them. And the program has pumped nearly $9 billion dollars into the FHA. While this is good for the FHA, which insures a large portion of the nation’s mortgage market, it’s not helpful for people living in places still reeling back from the foreclosure crisis.
“We think they should stop sales of these loans until they fix the program,” said Amy Schur, campaign director at Alliance of Californians for Community Empowerment. “They need to prioritize purchasers that have outcomes that preserve homeownership and create affordable housing in these neighborhoods.”
These protests are just the latest in the aftermath of the foreclosure crisis. There is a growing concern amongst homeowners and supporters regarding the “Wall Street-ization” of the housing market.
FHA is Happy
But according to the FHA, the program is working. “We really do consider the DASP to be quite successful in accomplishing what it set out to do,”said Carol Galante, the agency’s commissioner. “That was to achieve significant cost savings for [the FHA] and at the same time offer borrowers a final opportunity to avoid foreclosure.”
Source: Los Angeles Times, FHA is urged to reform loan sale program, September 10, 2014