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Calling for Change: Cities Nationwide Protest Agency Distressed Loan Sales Practices

avoid-foreclosureElected officials and community leaders in cities all over the country are rallying on Thursday to protest the sales of deeply delinquent mortgage loans by Fannie Mae [1], Freddie Mac [2], and HUD [3] to Wall Street investors and speculators.

Baltimore, Philadelphia, New York, East Orange, New Jersey, and San Francisco are a few of the cities that are pressing the GSEs to sell troubled mortgage loans to non-profits which they believe will be more effective at preventing foreclosures and stabilizing the neighborhoods in which the properties are located. The leaders of the nationwide campaign are Alliance of Californians for Community Empowerment (ACCE [4]) and its national partner organization, Center for Popular Democracy.

“We expect our federal housing agencies like Fannie Mae, Freddie Mac, and HUD to be contributing to our efforts to recover and rebuild in neighborhoods that have been hit hard by the housing crisis,” said Amy Schur, Campaign Director of ACCE. “Instead, they are undermining local rebuilding efforts and contributing to the displacement of poor and working families, particularly people of color, who are being pushed out of cities in the Bay Area and across the country. These federal agencies have been unwilling to modify loans with principal reduction and help struggling homeowners, and now they are turning around and giving a discount on some of these same troubled mortgages to Wall Street hedge funds and private equity firms. We think that’s insane. If they want to dispose of very delinquent mortgages, they should partner with local cities and communities and get those troubled mortgages into the hands of a good actor that wants to prevent foreclosures when possible, and if not possible wants to create affordable housing and meet community needs.”

She continued, “Those mission-driven actors exist. We are working with community development financial institutions that have raised the capital and have great programs to buy distressed mortgages and help communities. They’re the ones that Fannie Mae and Freddie Mac should be sitting down and negotiating sales with, not Wall Street speculators.”

“We expect our federal housing agencies like Fannie Mae, Freddie Mac, and HUD to be contributing to our efforts to recover and rebuild in neighborhoods that have been hit hard by the housing crisis.”

Amy Schur, Campaign Director, ACCE

HUD has sold more than $17 billion worth of distressed mortgages in the last five-plus years, about 95 percent of which went to private investors. For the last year and a half, Fannie Mae and Freddie Mac have been conducting bulk sales of deeply delinquent mortgage loans via auction in order to excise these loans from their single-family residential mortgage portfolios. Since July 2014, the GSEs have sold thousands of non-performing mortgages totaling more than $9 billion in unpaid principal balance. The majority of buyers in these sales have been investors, though Fannie Mae and Freddie Mac encourage participation from non-profits and require winning bidders to follow a stringent set of guidelines, including a “waterfall of resolution tactics” before resorting to foreclosure.

“The new NPL sale guidelines [5] for Fannie Mae and Freddie Mac [announced in March 2015] aim to both reduce risk to taxpayers and achieve better outcomes for borrowers,” an FHFA spokesperson told DS News in September. “The guidelines require NPL purchasers to evaluate all borrowers for loan modifications and to pursue foreclosure only as a last resort.  Fannie Mae and Freddie Mac have been very transparent about their NPL sales programs and have hosted training sessions encouraging non-profits and minority- and women-owned businesses to participate as NPL buyers.”

On HUD’s Distressed Asset Stabilization Program, though which the Department sells distressed mortgages, Federal Housing Administration Principal Deputy Assistant Secretary Ed Golding said in September, “FHA recently made significant changes to this program, including expanding our outreach to participating nonprofit organizations and requiring a 12-month delay in finalizing any foreclosure action to allow struggling families a greater opportunity to remain in their homes or find another sustainable housing solution.”

Some high profile lawmakers have gotten in on the protest over Agency non-performing loan sales. In September, Sen. Elizabeth Warren and Rep. Mike Capuano, both Democrats from Massachusetts, led a protest in Washington, D.C. [6] and met with federal housing regulators over the sale of Agency NPLs to investors.

Baltimore City Councilman Bill Henry said on Thursday, “Our communities here in Baltimore City were hard-hit by the housing crash and we’re still working to recover. Especially in light of our situation, I am absolutely outraged that federal agencies like HUD and Fannie Mae—which were designed to help address the housing needs of our country—would continue to sell off tens of thousands of troubled mortgages to hedge funds and private equity firms.”

Henry introduced legislation last year which was signed off by Baltimore’s mayor which commits the city to meeting with financial entities and encouraging them to sell delinquent mortgages to non-profits.

“Today, I’m proud to join with colleagues and community leaders from across the country in calling on Fannie Mae to stop contributing to the problem and to, instead, work with local leaders to develop strategies that help stabilize our neighborhoods,” Henry said. “. . .Fannie Mae should cease and desist any and all sales of mortgages in Baltimore City until they sit down with us and look at alternatives that could get these mortgages into the hands of a mission-driven non-profit, one which will be a partner with us in our work to help families and rebuild neighborhoods.”

East Orange, New Jersey Mayor Lester Taylor joined in the protests, stating on Thursday, “The foreclosure and mortgage crisis in New Jersey is the worst in the nation. East Orange has taken this crisis very seriously and worked diligently to keep families in their homes and stabilize our hardest hit communities. The City of East Orange can build on our successes, but only if the federal agencies prioritize the sales of delinquent mortgages to local non-profit partners with a commitment to our residents and our communities. I want Fannie Mae to talk with our City and our non-profit partners before selling off one more troubled mortgage to Wall Street.”

In San Francisco, elected officials and community leaders held a rally and press conference at the home of Jesse and Juana Tello, who have lived in their home for 19 years and are currently being foreclosed on by Fannie Mae and face eviction. ACCE members in Richmond (California), Oakland, and San Francisco, have been working on the issue for two years and have enlisted many elected officials to assist in the effort. Last year, ACCE got a resolution passed with the sponsorship of close to 20 mayors, including those in Oakland, Los Angeles, San Jose, and Richmond, and others around the country.

“We are working hard in Richmond trying to slow down displacement and protect our working class families, while federal agencies and lenders like Fannie Mae are fueling Wall Street’s land grab in our neighborhoods,” Richmond City Councilmember Gayle McLaughlin said. “We need our federal agencies to help—not hurt—our homeowners and neighborhoods.”