Sen. Elizabeth Warren joined activists and other lawmakers on Wednesday in a rally to curb the federal government’s sale of distressed mortgages to Wall Street firms.
Warren and fellow Massachusetts Democrat Rep. Michael Capuano called on the Department of Housing and Urban Development (HUD) and mortgage companies Fannie Mae and Freddie Mac — both of which are overseen by the Federal Housing Finance Agency — to stop selling so many loans to hedge funds and private equity firms.
Instead, the lawmakers want it to be easier for nonprofit groups to buy those loans. They argue that financial firms have been too quick to foreclose on struggling borrowers without offering them any loan modifications, The New York Times reported.
“The agencies package these loans in a way that is nearly impossible for nonprofits to compete,” Warren told Bloomberg News. “The heart of it is, these loan sales need to come with strings attached with basic outcomes for homeowners.”
HUD issued a statement to Housing Wire from the department’s principal deputy assistant secretary, Edward Golding, who said HUD officials met with protesters on Wednesday.
He said the “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.”
In the wake of the financial crisis, HUD established the Distressed Asset Stabilization Program, in which it sells pools of defaulted mortgages to investors at a discounted price and “provides the opportunity for the purchaser and borrower to avoid a costly foreclosure,” according to the program.
HUD has sold more than $17.3 billion worth of distressed loans since 2010, and 95 percent have been purchased by investment firms, according to Bloomberg.
Warren is quoted in The American Prospect as pointing out that “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.”
A 2013 Federal Reserve report noted that investors without ties to a neighborhood can pose risks to a local housing market, especially “if investors have difficulties managing such large stocks of rental properties or fail to adequately maintain their homes.”
“Such behavior,” the Fed said, “could lower the quality of the neighborhoods in which investors own rental properties.”
The report said that the involvement of large business investors has some upside, since they are able to deploy “capital to purchase and renovate houses that otherwise might have remained vacant for a long time.”
But community organizers and activists say financial firms disproportionately turn the properties into rentals, often keeping rents high in tight markets and displacing low-income families from their homes.
“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,” Amy Schur, the campaign director for the Alliance of Californians for Community Empowerment, told ThinkProgress. “This is not what these government entities should be tasked with or fueling.”