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Elizabeth Warren Leads Protest of Agency NPL Practices

Elizabeth Warren

Elizabeth Warren

Senator Elizabeth Warren and Representative Michael Capuano, both Democrats from Massachusetts, led a protest rally in Washington, D.C., on Wednesday to urge Fannie Mae, Freddie Mac, and HUD to stop selling deeply delinquent mortgage loans to private equity firms.

Warren and Capuano are trying to prevent the delinquent mortgage loans from being acquired by investors who are quick to foreclose on them. The lawmakers would rather see the loans acquired by non-profits who would be more likely to engage in the loss mitigation process with borrowers and prevent foreclosure.

To this end, Warren and Capuano along with other stakeholders (including leaders from community non-profit organizations) met with FHFA Director Mel Watt and HUD Principal Deputy Assistant Secretary Ed Golding in Washington to discuss the matter.

"Neighborhood stabilization is an important priority that we all share and FHFA welcomes all perspectives on the issue," an FHFA spokesperson said in response to Wednesday's events. "Director Watt is meeting with local elected officials and housing advocates. We are not at odds; a constructive dialogue is welcomed."

"This whole process shows just how tilted the playing field is for the big banks and hedge funds," Warren said in a statement emailed to DS News. "Many of these banks and funds were responsible for fueling the housing bubble in the first place—leading to the crash that hit these families like a punch to the gut. Now these same banks and funds are turning around and scooping up these loans at bargain-basement rates so they can profit from them a second time. Our government agencies are supposed to work for American families—not for the biggest financial institutions—and they should be doing more to work with non-profits to help families stay in their homes."

"This whole process shows just how tilted the playing field is for the big banks and hedge funds." - Elizabeth Warren

HUD has sold more than $17 billion worth of non-performing loans in the last five years—about 95 percent of which were sold to private investors. According to a report from Bloomberg, HUD has received complaints from non-profits that have the goal in mind of achieving the best possible outcome for the borrowers and the communities in which the properties are located.

"I have long been troubled by the approach federal housing agencies are taking toward families and communities struggling through the foreclosure crisis," Capuano said in an emailed statement. "I have expressed my concerns on numerous occasions—in meetings, Congressional hearings and in writing. I have yet to receive a satisfactory response from anyone. The decision to sell off thousands of loans at a time at sharp discounts to the highest bidder continues to enrich Wall Street at the expense of neighborhoods and community-based organizations. Housing affordability and neighborhood stability are being sacrificed in favor of the economic interests of the largest financial institutions in America."

Mike Capuano

Mike Capuano

Fannie Mae and Freddie Mac have intensified their efforts to sell non-performing single-family mortgage loans in the last year. Since July 2014, Freddie Mac has sold approximately $4.5 billion worth of NPLs through seven bulk sales. Fannie Mae completed its first bulk NPL sale in April including mortgage loans totaling $786 million in unpaid principal balance. In early September, Fannie Mae sold a smaller "Community Impact Pool" of NPLs including 71 loans with approximately $10 million in UPB, specifically geared to engage participation for Non-profits, Minority- and women-owned businesses and community groups. The buyer was New Jersey Community Capital, a non-profit.

"The new NPL sale guidelines for Fannie Mae and Freddie Mac [announced earlier this year] aim to both reduce risk to taxpayers and achieve better outcomes for borrowers," an FHFA spokesperson said in an email to DS News. "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. This is evident by Fannie Mae’s recent sale of NPLs to New Jersey Community Capital."

Both HUD and FHFA, which is the conservator for Fannie Mae and Freddie Mac, have announced enhanced rules for the sale of non-performing loans in the last six months. HUD now requires the buyer of the loans to delay foreclosure for at least a year and to evaluate the borrower for loss mitigation possibilities. FHFA announced in March a set of more stringent guidelines for NPL buyers.  The new requirements call for bidders to identify servicing partners at the time of qualification and complete a questionnaire to demonstrate a record of successful loan resolution through foreclosure alternatives. As part of the new requirements, servicers who purchase non-performing Agency loans must apply a "waterfall of resolution tactics" before resorting to foreclosure.

"The new NPL sale guidelines for Fannie Mae and Freddie Mac  aim to both reduce risk to taxpayers and achieve better outcomes for borrowers." - FHFA

"We discussed how HUD and FHA might make better use of one of its tools, the Distressed Asset Stabilization Program (DASP), to further the Department’s goal of stabilizing communities  and assisting them as they, and their public-minded partners, work to address severely distressed mortgages that are on the verge of foreclosure," Golding said of Wednesday's activities. "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.

"This meeting offered an important, constructive and meaningful opportunity to discuss broad goals we support with these community leaders. We are, and will continue to be, a strong and consistent supporter of those who toil on the front lines of our housing recovery. FHA takes its mission very seriously. Every day, we work to make sure households have access to affordable mortgage credit and to ensure the agency’s insurance funds remains viable for many millions of households who depend upon FHA. We will continue to explore all responsible options to avoid unnecessary foreclosures while keeping FHA healthy and available for future generations of homeowners."

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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