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HUD Puts In New Protections For Struggling Homeowners

WSJ - By Joe Light

The U.S. Department of Housing and Urban Development on Friday said that it would make a number of changes to its program of selling delinquent mortgages to investors and nonprofits, putting in protections to attempt to prevent foreclosures and help nonprofits buy more of their loans.

Since 2010, the department has sold loans backed by the Federal Housing Administration to investors, a program that’s meant to mitigate the FHA’s losses while giving investors a chance to profit by attempting to get households to start payments again.

Those auctions had come under criticism from some nonprofits, who said that there weren’t enough incentives for investors to prevent foreclosures and that the auctions were too big and geographically-dispersed for them to participate.

Friday’s changes include requiring mortgage servicers to delay foreclosure for a year–up from the prior requirement of six months–and to evaluate borrowers for loan modifications. HUD, which is planning to have its first delinquent loan sale of 2015 in June, says it will also create pools of loans that can only be sold to nonprofits and units of local governments.

Some nonprofit groups hailed the news.

“We applaud the FHA for taking these significant steps to improve homeownership opportunities in neighborhoods hard hit by the foreclosure crisis,” said Ed Gorman, chief of community development for the National Community Reinvestment Coalition, in a statement. “While we still remain concerned that some sales may result in foreclosures or purchases by Wall Street businesses, we look forward to working with the FHA to stabilize neighborhoods and keep more people in their homes.”

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, last month put in place its own requirements for investors who buy nonperforming loans from the companies, winning praise from some community groups but criticism from others who felt the new requirements didn’t go far enough.

On the other hand, investors have been wary of new requirements on purchasers. Some investors also say they make the loans less valuable and that investors already take significant steps to try to keep borrowers in homes.

In a statement, New Jersey Senator Bob Menendez (D.) said, “FHA’s program has tremendous potential to help more homeowners keep their homes, and help struggling communities break negative cycles of foreclosure, abandonment, and disinvestment. I commend HUD for the actions taken today, which represent important steps to help meet these goals.”

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