The U.S. Department of Housing & Urban Development and Federal Housing Administration have announced significant changes to its Distressed Asset Stabilization Program.

Loan servicers will now be required to delay foreclosure for a year and to evaluate all borrowers for the Home Affordable Modification Program or a similar loss mitigation program.

HUD is also making additional improvements to the Neighborhood Stabilization Outcome sales portion of DASP which are aimed at increasing non-profit participation. Updates include giving non-profits a first look at vacant properties, allowing purchasers to re-sell notes to non-profits, and offering a non-profit only pool.

“These changes reflect our desire to make improvements that encourage investors to work with delinquent borrowers to find the right solutions for dealing with the potential loss of their home and encourage greater non-profit participation in our sales,” said Genger Charles, Acting General Deputy Assistant Secretary, Office of Housing. “The improvements not only strengthen the program but help to ensure it continues to serve its intended purposes of supporting the MMI Fund and offering borrowers a second chance at avoiding foreclosure.”

All of these changes will be subject to stronger reporting requirements including tougher penalties for not complying with quarterly reporting responsibilities and a new requirement to report on borrower outcomes, even when a note is sold after the original purchase.

The National Community Reinvestment Coalition’s Chief of Community Development Ed Gorman said it’s a step in the right direction.

“We applaud the FHA for taking these significant steps to improve homeownership opportunities in neighborhoods hard hit by the foreclosure crisis,” Gorman said. “NCRC and its member organizations have advocated to the FHA for improving the number and quality of Neighborhood Stabilization Outcome targeted loan pools.

“We’re pleased that the FHA listened to these concerns and adopted several of our key recommendations. 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,” he said. “We urge the FHFA to consider similar measures in their guidance on non-performing loan sales.”