- Senator says mortgage giants should help nonprofits buy loans
- HUD has sold $17 billion of troubled loans in last five years
U.S. Senator Elizabeth Warren wants to restrict Wall Street firms from buying thousands of distressed home loans, the most prominent lawmaker to put pressure on the government to curtail the practice.
Massachusetts Democrats Warren and Representative Michael Capuano will hold a protest in Washington Wednesday to urge mortgage giants Fannie Mae and Freddie Mac as well as the Department of Housing and Urban Development to stop selling so many troubled loans to private equity firms and hedge funds, and instead make it easier for nonprofits to buy them. Investment firms have been rushing to foreclose on homeowners rather than modify their delinquent loans, the lawmakers said.
“The agencies package these loans in a way that is nearly impossible for nonprofits to compete,” Warren said in a telephone interview. “The heart of it is these loan sales need to come with strings attached with basic outcomes for homeowners.”
HUD said it sold more than $17.3 billion of troubled loans since 2010, with about 95 percent going to investment firms. The agency has faced complaints from nonprofit organizations, whose primary mission is aiding borrowers and communities, that its sale terms favor large investors backed by firms such as Oaktree Capital Management and Blackstone Group LP.
In April, HUD announced changes to its asset sale program requiring a year delay of foreclosures after buying the loans and mandating evaluation of borrowers for modifications. The department also made additional changes aimed at increasing nonprofit participation including giving the organizations a first look at vacant properties and offering a non-profit only pool.
HUD didn’t respond to e-mailed requests for comment.
Investment firms including Lone Star Funds, Bayview Asset Management and Selene Finance LP have been some of the biggest buyers of delinquent home loans.
Along with HUD, the government-backed mortgage companies have accelerated auctions of loans that went bad after the housing crash. Last year, Freddie Mac started selling nonperforming loans and Fannie Mae started bulk sales this year.
The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, laid out new requirements for the loan sales in March to ensure buyers consider a range of alternatives to foreclosure for borrowers.
The new sale guidelines aim to reduce risk to taxpayers and achieve better outcomes for borrowers, FHFA said in an e-mailed statement. The mortgage companies have hosted training sessions encouraging nonprofits and minority and women-owned businesses to participate as buyers, the statement said.
“The vast majority of the mortgages are still going to Wall Street speculators who after a year move to foreclose on too many of these families and turn these properties to rental backed securities,” said Amy Schur, campaign director for the Alliance of Californians for Community Empowerment. “This is not what these government entities should be tasked with or fueling.”
Warren will be joined by progressive community organizations, council members and mayors from Baltimore, Philadelphia, New Orleans and Chapel Hill, North Carolina. Following a speech, the group will march in protest outside of FHFA headquarters. The nonprofit organizations are scheduled to meet with FHFA Director Mel Watt and Ed Golding, a principal deputy assistant secretary at HUD.