Housing Agency Plans Mortgage Sale Reforms After Criticism
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Version 0 of 1. Life may soon get tougher for private buyers of distressed mortgages from the federal government. The Department of Housing and Urban Development or HUD, said on Tuesday that it would announce, possibly as soon as this week, a new set of rules governing the sale of mortgages formerly guaranteed by the government. The new rules would come after months of criticism from housing advocates that the loan sale program, which began in 2010, has benefited private equity firms and hedge funds at the expense of strapped borrowers. Cameron French, an agency spokesman, said housing officials had been working on the changes to the loan sale program for months in consultation with “a broad group of stakeholders on the potential reforms that would make the most impact for distressed homeowners.” He said the new rules should be announced this week. One of the expected changes will probably affect the kind of mortgage modifications private buyers can give to distressed borrowers, many of whom have not made mortgage payments in two years. The new rules are unlikely to affect the next scheduled sale of loans by HUD, on Wednesday. The loans being sold by the agency in that auction are ones deemed “extremely delinquent,” or those whose borrowers have not made payments for 48 months. This month, the National Consumer Law Center issued a report analyzing the loan sale program and specifically criticized private buyers for interest-only modifications that did not reduce the overall amount of debt a homeowner owed and reverted back to the original loan terms after a five-year period. The report said, “there is no evidence from the sales over the past four years that the speculative investors gave homeowners loan modifications that reduced the principal of the loans at any significant rate or that sustainable modifications were provided in substantial numbers.” To date, HUD has auctioned off just over 105,000 mortgages to more than a dozen private buyers who have bought the loans at a sharp discount to their face value. Two of the largest buyers of distressed mortgages have been Lone Star Funds, a private equity firm based in Dallas, and Bayview Asset Management, a firm affiliated with the Blackstone Group, one of the world’s largest private equity firms. Up until now, HUD officials have generally supported the loan sale program as being the last best chance to keep delinquent borrowers in their homes. The loans sold by the government are ones that were originally written by large banks with insurance guarantees by the federal government. The loans sale has been successful in reducing the cost to the government of guaranteeing those mortgages against a default because once the loans are sold, they are no longer insured by the Federal Housing Administration’s mortgage insurance fund. This year, housing advocates have stepped up their calls for reforms in the loan sale program and singled out Julian Castro, the HUD secretary, for what they said was his slow response to heeding the criticisms. The advocates made no secret that they were stepping up their campaign as Mr. Castro’s name has been floated as a potential vice presidential running mate for Hillary Clinton, who is seeking the Democratic presidential nomination. Mr. French, the HUD spokesman, alluded to the pressure from housing advocates by saying in his statement: “It has always been our goal to get the policy right, regardless of arbitrary deadlines.” Housing advocates are not the only ones who have pushed for major changes to the loan sale program. Dozens of public officials, including member of Congress, have written to HUD officials, criticizing the program for leading to increased foreclosures and profit for private equity. Two of the more outspoken legislative critics have been Senator Elizabeth Warren, the Massachusetts Democrat, who is known for her support of liberal causes, and Representative Michael E. Capuano, a Massachusetts Democrat and former mayor of Somerville, Mass. |