CPD IN THE NEWS

Truthout - October 5, 2014, by Rebecca Burns - After learning that his home was in foreclosure in July 2013, James Cheeseman received an even more unpleasant surprise when he showed up in court the following January. He was told that his mortgage loan had been sold by JP Morgan Chase and purchased by a company he had never heard of before - LVS Financial.

Cheeseman had already applied for a loan modification from Chase and says he was still awaiting a response when the loan sale occurred - a move that he and his attorney argue violates New York State foreclosure laws. Cheeseman says that the new servicer, BSI Financial, then required him to fill out a whole new loan modification application. In mid-September, he learned that he had been denied.

Though he is asking the court for another shot at a modification, this curveball has caused considerable distress for Cheeseman, 47, and his mother Constance, 75, who have resided in the New York home that they co-own for five years.

"I was shocked; I thought that [the resale of bundles of bad loans] was over," he says. "That's what got the country into trouble in the 2008 [mortgage crisis]. But lo and behold, it's still going on."

Legal advocates, however, say that significant abuses by servicers may already have taken place.

In fact, the Cheesemans and their attorney believe that the sale of their loan was part of a recently expanded federal program ostensibly intended to provide relief to homeowners on the brink of foreclosure. Though foreclosure rates have been falling nationwide, 2 million homeowners are still behind on their mortgages and headed for foreclosure and another 10 million are underwater on their mortgages and at risk of the same in the future. About half a million of those seriously delinquent loans are insured by the Federal Housing Administration (FHA), representing a drain on the agency's taxpayer-backed insurance fund.

In 2012, the FHA expanded a program to auction off pools of "nonperforming loans" - those on which homeowners are at least six months delinquent on their mortgage payments - to both for-profit and nonprofit bidders. To date, nearly 100,000 loans have been sold through the Distressed Asset Stabilization Program (DASP), bringing $8.8 billion into the FHA's coffers. The agency asserts that the program can also help reduce foreclosures, as private loan-buyers not hemmed in by the same restrictions as the government agency should be able to pursue a wider range of avenues to keep residents in their homes.

Perhaps the most troubling aspect of DASP is where loans sold through it are ending up. HUD's own data reveals that 98 percent of these loans were purchased by private investors.

But citing stories like Cheeseman's, some housing-rights organizations are telling a different story about DASP. They contest that the program has deepened the pain of homeowners and tenants by handing their fates over to hedge funds and investment groups that often have no interest in pursuing loan modifications or other options that would allow residents to remain in their homes. On September 9, community groups in more than 10 cities nationwide protested at local offices of the US Department of Housing and Urban Development (HUD), which oversees the FHA and DASP. Noting that, by HUD's own numbers, private investors - including private equity firms, hedge funds, specialty servicers and single-family rental companies - have won bids on close to 98 percent of all loans auctioned through DASP, many housing advocates are calling for a halt to the program until it can be overhauled.

Asked about criticisms of DASP, HUD told Truthout that it is exploring several changes to the program. But on September 30, the FHA proceeded with the sale of another pools of loans totaling $2.3 billion in unpaid principal balances.

The Devil's in the Details

HUD did not release data on DASP to the public until August, though housing advocates have for some time been requesting information on the program's outcomes. In its first report on DASP, HUD concluded that the loan-sales program has "met its intention" of mitigating losses to the FHA, thereby minimizing risks to taxpayers. The agency touts sales made through DASP as a way to stabilize its taxpayer-backed insurance fund, which, following losses of more than $50 billion on mortgages it insures, required a federal subsidy of $1.7 billion for the first time in its 80-year history. HUD projects that in the coming years, DASP and other loss-mitigation strategies will add $5 billion to the FHA's insurance fund.

"By selling homes to private equity giants and vulture capitalists, DASP is fueling the rise of the Wall Street landlord."

The report concludes that DASP may be beneficial for homeowners as well, citing the fact that, while about half of the loans sold had not yet been resolved, of those that had, 34 percent of homeowners were able to avoid foreclosure. In a statement provided to Truthout by HUD, FHA Commissioner Carol Galante said:

We consider the Distressed Assets Sales Program to be very successful in accomplishing what we intended it to do. This program not only achieves significant cost savings for FHA's insurance fund, but offers borrowers a final opportunity to avoid foreclosure, which they wouldn't otherwise have. The results speak for themselves. Based on our initial data, an encouraging share of families are now re-performing and others have achieved a graceful exit from an unsustainable mortgage. It's important to note that all these families would be foreclosed upon if not for this program, which, in one way or another, has offered many of these borrowers another path.

But community groups say that this characterization lumps together dramatically different outcomes for homeowners. A September report released by the community groups Right to the City Alliance and Center for Popular Democracy (CPD) notes that of loans that were counted as having avoided foreclosure, many had been sold to a third party or resulted in a short-sale. Though homeowners were able to avoid foreclosure in 34 percent of loans resolved to date, they were able to gain modifications or otherwise begin making payments again in just 10.9 percent of the resolved cases.

"What we want to see is people being able to stay in their homes. And this category of 'foreclosure avoidance' includes a lot of outcomes in which [they] were absolutely not able to stay in their homes," Connie Razza, CPD's director of strategic research and author of the report, titled "Vulture Capital Hits Home: How HUD is Helping Wall Street and Hurting Our Communities," told Truthout.

Homeowners Claim Abuses

That's not the only bone housing activists have to pick with the program. Only loans that are not eligible for standard FHA loss mitigation - those, that, for example, have failed to qualify for loan modifications or other measures - are supposed to be included in the program. But some legal and housing advocates believe that mortgage servicers, for whom a quick insurance payout may be more attractive than a lengthy foreclosure process, could be flouting this requirement.

"When speculators heat up the market for 'distressed mortgages' they make it harder for anyone who acquires them - whether for profit or nonprofit - to make win-win deals that preserve homeownership and stabilize communities."

For example, James Cheeseman says he was beginning a settlement conference with Chase Bank, a step required under New York law to determine whether a modification, short sale or other alternative agreement can be reached before a lender proceeds with foreclosure, when his attorney learned that his loan had been sold in January. Cheeseman says that he was never notified of the sale - instead, he says, his attorney noticed the change during the discovery phase of the settlement conference.

"Our suspicion is that once [Chase] found out that [the foreclosure] was going to be an extended process, they sold their note," says Cheeseman. "The've been hit with fines for shady practices in the past, but they’re still doing it. But HUD is a government agency - it's like we're paying for those shady practices."

James and Constance Cheeseman's house went into foreclosure in 2013 after James was laid off from his job as an auto claims examiner. He says that he and his mother fell victim to a loan-modification scam at the hands of the Templeton Group, against whom the New York District attorney recently filed a suit over such abuses. But the Cheesemans applied for another modification last year, hopeful that the result would be different, given that James had found work again, and they also had additional income through a renter. They believe that the loan's sale has restricted their options: After purchase by an investor, the Cheesemans' loan was no longer insured by the Federal Housing Administration (FHA), disqualifying them from the federal Home Affordable Modification Program (HAMP). BSI Financial, the loan's new servicer, is attempting to continue with the foreclosure.

Nonprofits have been unsuccessful in buying loans through DASP after being outbid by for-profit competitors.

Banks selling loans to the FHA for auction through DASP receive an insurance payout equal to the unpaid principal balance of the loan. Housing-policy advocates fear that this could create an incentive for mortgage servicers to cut through judicial red tape by simply selling loans to the FHA for auction through DASP. Another report, released in September by the progressive think-tank the Center for American Progress (CAP), notes that roughly 76 percent of the loans auctioned through DASP between 2013 and 2014 were sold off by Bank of America, JP Morgan Chase, or Wells Fargo - three banks that have become notorious for loan-servicing abuses.

"Servicers stand to make out very well from this program," says Sarah Edelman, a researcher at CAP and one of the authors of the report.

HUD tells Truthout that, in response to concerns from CAP and other housing advocates, it has recently changed the process through which it verifies that servicers have fully exhausted loss-mitigations options. Previously, servicers were permitted to self-report that they had completed all the mandatory steps, and HUD program officers conducted checks on a sample of the loans submitted for auction. In advance of the auction on September 30, according to HUD, program officers checked all loans and removed a small number for which loss mitigation records were unclear.

Legal advocates, however, say that significant abuses by servicers may already have taken place. In May, the National Fair Housing Alliance, together with several other consumer and legal-aid organizations, wrote a letter to Commissioner Galante to express concern with "significant servicer noncompliance with HUD loss mitigation protocol" and call for stronger protections for homeowners affected by DASP. The letter detailed several cases in which homeowners had already been accepted for FHA-HAMP modifications and were making trial payments when new servicers stepped in and said they were no longer honoring the modifications. In several cases, like the Cheesemans, homeowners say they received no notice that their loans had been sold.

Under current policy, community organizations that have a real interest in preserving affordable housing often get the least help in acquiring distressed properties.

Vicente and Guadalupe Salgado, residents of Chicago's Albany Park neighborhood, believe they may be one more such case. After the couple fell behind on their mortgage in 2011, they fell victim to a mortgage modification scam and entered foreclosure. Since then, they say that they have applied for FHA loan modifications several times and were awaiting a response in July 2014 when they were contacted by a new servicer, who told them that they had been denied. The Salgados say they were told that they could not apply again unless they could pay one-third of the remaining principle balance up front, which amounted to $22,000.

"If I had that much money, I'd just find a new place to live," says Guadalupe Salgado.

The Salgados were among the homeowners who protested at HUD offices nationwide to call for an end to the resale of FHA loans, and they are seeking a meeting with HUD to try and determine whether the loan was, in fact, sold through DASP.

HUD says that in cases where a loan has been sold through DASP erroneously, the agency is able to return the mortgage note to the original lender and reverse the insurance claim. However, the agency says that this has been discovered in post-sale reviews of records, rather than through complaints by borrowers, and has happened in a very small number of cases.

Rise of the Wall Street Landlord

Perhaps the most troubling aspect of DASP is where loans sold through it are ending up. HUD's own data reveals that 98 percent of these loans were purchased by private investors; just three investment and private-equity firms - Lone Star Funds, Bayview Asset Management, and Serene Investment Partners - won nearly half of all loans.

The market for distressed loans isn't the only asset class to emerge from the ashes of the foreclosure crisis. During the past two years, investors have bought up more than 200,000 mostly foreclosed homes. After scooping up properties at bargain-basement prices, groups such as Invitation Homes, a subsidiary of private-equity giant the Blackstone Group, have built a new industry specializing in the rental of single-family homes, and even begun securitizing tenants' rental payments to sell billions of dollars in "rent-backed securities,"a financial product similar to mortgage-backed securities that taps tenants' rent checks as an income stream for investors.

Critics of DASP worry that the program may, for some investors, amount to little more than another means of acquiring cheap rental properties. At least two DASP buyers also operate single-family-home rental firms. The Blackstone Group - which through its subsidiary Invitation Homes is now the largest owner of single-family homes nationwide - owns a controlling stake in Bayview Asset Management, which has won nearly 20,000 loans through DASP.

"By selling homes to private equity giants and vulture capitalists, DASP is fueling the rise of the Wall Street landlord," says Kevin Whelan, national campaign director of the National Home Defenders League, which helped coordinate the September protests against DASP.

There's another troubling trend associated with DASP: The accelerating sale of bad loans has helped give rise to a  "distressed-mortgage securities market." At least 11 buyers who have won loans through DASP have securitized some or all of the loans purchased through the program, and analysts estimate that investors will trade roughly $60 billion in distressed mortgage assets by the end of 2014, compared with just $25 billion in 2013, according to the report by the Right to the City Alliance and the Center for Popular Democracy. CPD's Razza also notes that firms that securitize distressed loans may be most likely to continue winning them in the future - according to her report, securities have enabled for-profits to bid 15 - 20 percent higher on loans than their competitors.

This trend is undermining DASP's ostensible goal of helping homeowners and "contributing to a new speculative housing bubble," says Whelan, noting that the price of distressed mortgages has been driven upward by investor demand. "When speculators heat up the market for "distressed mortgages" they make it harder for anyone who acquires them - whether for profit or non-profit - to make win-win deals that preserve homeownership and stabilize communities." 

Community Groups Left Out

Indeed, though DASP was initially billed as a means of involving more community organizations with a solid track record in foreclosure prevention, nonprofit organizations have won just 2 percent of loans sold through the program, according to the Center for American Progress’ report.

HUD stresses that because all of the loans sold through the program were headed for foreclosure, DASP is a last shot for homeowners to achieve an alternative outcome. But Whelman says this amounts to a "beggars-can't-be-choosers" rationale that does not necessarily bear out. "HUD's own figures show that the vast majority of families whose loans are sold off to investors lose their homes, whether via foreclosures, short sales, or other mechanisms," he says. "But there are nonprofits that can buy these loans that have a track record of keeping more than half the families in deeply distressed loans in their homes."

Several such nonprofits have been unsuccessful in buying loans through DASP after being outbid by for-profit competitors. New Jersey Community Capital (NJCC), a community-development group, has successfully purchased loans in New Jersey and Florida through DASP's "Neighborhood Stabilization Outcome" (NSO) pools, which are area-specific and require that buyers achieve a set of goals that enhance community stability - including reperformance of a loan wherein a borrower is able to begin making payments again, or a property's rental to a borrower - in at least half of loans purchased.

In an email to Truthout, NJCC said that it had been able to modify 45 percent of the loans in owner-occupied homes, a rate much higher than the industry standard. Nevertheless, the organization has been unable to scale up its purchases through DASP - in June, it was outbid on an NSO pool of loans in New Jersey by a for-profit investor. Even in NSO pools, nonprofits have won just 12 percent of loans, but outcomes are slightly better, with nearly 25 percent of residents able to remain in their homes.

NJCC and other nonprofits are calling on HUD to enable the participation of more mission-driven nonprofits, including by expanding the NSO pools, which currently constitute just 20 percent of DASP sales, or creating nonprofit specific pools. "This could be a very effective program, if FHA can get loans in the hands of buyers who are committed to neighborhood stabilization - that's if," says CAP's Edelman.

In a statement provided by HUD, Galante said: "HUD is also exploring every option to increase nonprofit participation in our program, including allowing more time for these organizations to perform the necessary due diligence and to assemble sufficient capital." The agency also told Truthout that in an upcoming November DASP auction, it will offer more NSO pools, including several that are smaller and more geographically concentrated. 

But other housing-rights organizations believe that even farther-reaching measures are needed. The Chicago-based Autonomous Center of Albany Park, which is working with Guadalupe and Vicente Salgado to help fight their foreclosure, also operates Casas del Pueblo, a 501(c)3 community land trust that holds titles to properties and believes that federal policy should require more banks and investors that profited from the mortgage crisis to donate properties to community organizations outright.

Donation to a land bank is one option that buyers of loans in NSO pools may take to fulfill their obligations to the program's requirements, and some banks have chosen to donate properties to nonprofits in small number to receive a tax write-off. But Antonio Gutierrez, housing coordinator at Casas del Pueblo, says that under current policy, community organizations that have a real interest in preserving affordable housing often get the least help in acquiring distressed properties. The land trust, for example, is currently in negotiations with Fannie Mae to purchase the home of a domestic violence survivor who went into foreclosure after her abusive husband left the home and has been fighting to remain in it for four years. Though DASP buyers can obtain properties at an average of between 40 and 60 percent of the remaining principal balance on a mortgage, Fannie Mae has asked Casas del Pueblo to pay the full market value of $250,000 to obtain their member's home, even though she had already made a decade of mortgage payments on her mortgage.

"The DASP program isn't really providing neighborhood stabilization, it's actually contributing to the displacement of existing communities" when investors buy loans with the intent of foreclosing on properties and finding higher-income renters, says Gutierrez. Even the loan modifications provided by commercial banks and investment groups may merely be "prolonging the process of foreclosure,"  he says. "If we want a permanent solution and true neighborhood stabilization," he says, "we need federal policies that say that principal reductions, buybacks and donations to community land trusts are not optional. They need to be priorities."

In the meantime, the Autonomous Center is part of a national coalition calling on HUD to halt DASP outright until it can be overhauled. The Center for Popular Democracy, the Home Defenders League and other housing organizations say they gathered 11,000 signatures on a petition calling for an end to sales through DASP, and are planning further protests if they don't receive a response. Among those watching HUD's next move are the Salgados, who believe their house could be auctioned later this year.

"I'm waiting and trying to investigate who owns the loan," says Guadalupe Salgado. "But this is my house, because I've fought for it."

Source

The Washington Post - December 6, 2013, by Valerie Strauss - A coalition of education, labor, civic and civil rights organizations, led by the American Federation of Teachers, is staging a “National Day of Action” on Monday with dozens of coordinated events in cities across the country that are aimed at building a national movement to fight corporate-influenced school reform and offer alternative ways to improve public education. The AFT is buying $1.2 million in radio, print and online ads to get out the message.

Protests have been building this year in different parts of the country against the education reform movement that is dominated by the use of standardized test scores as the chief “accountability” metric and school “choice” that has led to the growing privatization of public schools. The AFT says that Monday will be the first time so many events — protest marches, news conferences, and town halls scheduled in 60 cities including Washington, D.C., New York, Chicago, Austin, Houston and other Texas cities, Boise, Los Angeles and several locations in Florida — have been coordinated to send a message to policymakers that school reform should be focused not on closing schools, punishing teachers and deluging kids with tests but on providing teachers and students with the resources they need to teach and learn.

“Teachers, parents, students and community members are banding together to demand a new direction for public education,” AFT President Randi Weingarten said. “In some ways, this Day of Action is years in the making. Parents, students, teachers and community members have been coming together in places like Chicago, Philadelphia and New York to call out what’s not working and create solutions that do. Text-fixation, austerity, privatization, division, competition are not working for our students – as we saw in the PISA results this week. Our schools need evidence-based, community-based solutions like early childhood education, wraparound services, professional autonomy and development, parent voices and project-based learning. That’s what this Day of Action is about. That’s what reclaiming the promise is about. These are our schools and they need our solutions.”

Dozens of organizations representing parents, educators, clergy, civil rights activists, and community groups are participating in the event, which is being sponsored nationally by these groups:  Alliance for Educational Justice,  American Federation of Teachers, Annenberg Institute for School Reform, Dignity in Schools Coalition, Gamaliel Network, Journey for Justice Alliance, Leadership Center for the Common Good, League of United Latin American Citizens, National Education Association, National Opportunity to Learn Campaign and the Service Employees International Union.

In October, a number of organizations came together to come up with a strategy to build a national movement around shared principles, which you can read find here. Among the principles:

Public schools are public institutions.

Our school districts should be committed to providing all children with the opportunity to attend a quality public school in their community. The corporate model of school reform seeks to turn public schools over to private managers and encourages competition — as opposed to collaboration — between schools and teachers. These strategies take away the public’s right to have a voice in their schools, and inherently create winners and losers among both schools and students. Our most vulnerable children become collateral damage in these reforms. We will not accept that …

Our voices matter.

Those closest to the education process — teachers, administrators, school staff, students and their parents and communities — must have a voice in education policy and practice. Our schools and districts should be guided by them, not by corporate executives, entrepreneurs or philanthropists. Top-down interventions rarely address the real needs of schools or students …

Strong public schools create strong communities.

Schools are community institutions as well as centers of learning. While education alone cannot eradicate poverty, schools can help to coordinate the supports and services their students and families need to thrive. Corporate reform strategies ignore the challenges that students bring with them to school each day, and view schools as separate and autonomous from the communities in which they sit.

• “Community Schools” that provide supports and services for students and their families, such as basic healthcare and dental care, mentoring programs, English language classes and more, help strengthen whole communities as well as individual students …

Assessments should be used to improve instruction.

Assessments are critical tools to guide teachers in improving their lesson plans and framing their instruction to meet the needs of individual students. We support accountability. But standardized assessments are misused when teachers are fired, schools are closed and students are penalized based on a single set of scores. Excessive high-stakes testing takes away valuable instructional time and narrows the curriculum — with the greatest impact on our most vulnerable students.

Quality teaching must be delivered by committed, respected and supported educators.

Today’s corporate reformers have launched a war on teachers. We believe that teachers should be honored. Teaching is a career, not a temporary stop on the way to one. Our teachers should be well-trained and supported. They should be given the opportunity to assume leadership roles in their schools. Highly qualified teachers and school staff are our schools’ greatest assets. Let’s treat them that way …

Schools must be welcoming and respectful places for all.

Schools should be welcoming and inclusive. Students, parents, educators and community residents should feel that their cultures and contributions are respected and valued. Schools that push out the most vulnerable students and treat parents as intruders cannot succeed in creating a strong learning environment. Respectful schools are better places to both work and learn …

Our schools must be fully funded for success and equity.

More than 50 years ago, in Brown v. Board of Education, the U.S. Supreme Court acknowledged that African-American students were being denied their constitutional right to an integrated and equitable public education. We have not come far enough. Today our schools remain segregated and unequal. When we shortchange some students, we shortchange our nation as a whole. It is time to fund public schools for success and equity, for we are destined to hand off the future of our nation to all our young people.

• We must end the practice of funding our schools based on local property wealth. Only when we take responsibility for all our schools, and all our children, will schools succeed for all our society …

The events planned for Monday’s National Day of Action include a town hall in Washington, D.C., at which teachers and parents will develop a community-driven vision for public schools, starting at 6 p.m. at Eastern High School.  In New York City, union, community and youth partners fighting to win universal full-day prekindergarten will host a rally marking the start of a joint labor-community campaign to support new education initiatives as part of a “new day for public education in New York City” under Mayor-Elect Bill de Blasio.

In Houston, union and community partners will hold a news conference and rally outside the school board offices, where they will call for an end to an overreliance on tests and for fair teacher evaluations. In Chicago, organized parents, teachers and youths will hold a news conference at City Hall and a march to the headquarters of corporate agents such as Loop Capital to demand equitable funding and a public voice in education. In Boise, Idaho, parents, teachers and several community organizations will gather around the state Capitol to support school funding for Idaho public schools, which have some of the lowest state funding in the country.

Here’s how an action in Philadelphia is described on the event list:

A powerful contingent of community and youth groups, parents and labor unions will rally outside Gov. Tom Corbett’s Philadelphia office in coordination with partners in Pittsburgh, followed by a march to the corporate office of Loop Capital, an Illinois bank that has contributed to the privatizing of schools in Chicago and handed out bad interest loans that have crippled Philadelphia’s school system. The union-community alliance is fighting to restore statewide education funding, establish a new equitable education funding formula in 2014, and demand that Loop Capital pay back the bad loans.

The sponsors are the National Day of Action are planning more action in the spring.

Source

EAST ORANGE, NJ - The U.S. Department of Housing and Urban Development (HUD) has announced significant improvements to their delinquent mortgage sales program.

The changes include:

·       Making principal reduction the first strategy in modification processes

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·       Increased non-profit participation — with a goal of tripling the number

·       Far greater provisions for transparency in the sale process

·       A commitment to work with local governments and non-profits on targeted sales

These reforms come on the heels of an aggressive community pressure campaign, led by local elected officials affiliated with Local Progress, a national network of progressive elected leaders, and community groups affiliated with the Center for Popular Democracy.

The East Orange City Council passed a resolution sponsored by First Ward Councilman Christopher James in April 2016 calling on HUD to make reforms along these lines. In September of 2015, Councilman James traveled to Washington, D.C. to join others in meeting with top officials at HUD about this issue.

“This is one giant step in the right direction toward helping residents get back on their feet and rebuilding our communities,” said James. “Mutual understanding of the process  and greater transparency will allow us to assist our residents in avoiding foreclosure.” As a city, East Orange has taken aggressive steps to reduce the lingering impact of the foreclosure crisis in its neighborhoods.

“My administration, with the support of the City Council, has taken progressive action to address the foreclosure crisis and stabilize our neighborhoods. In November 2014, we established a Division of Vacant and Abandoned Properties solely dedicated to identifying, registering and collecting fees and fines from agencies, such as banks and other creditors, who violate our city code,” said Mayor Lester E. Taylor III. “With these new reforms, we continue to take advantage of every opportunity  – including the enforcement of new state laws – that will help us to revitalize our city, boost property values and restore community pride.”

Last summer, Local Progress members led a successful effort to get a resolution passed at the June meeting of the U.S. Conference of Mayors, calling on HUD to prioritize selling these troubled mortgages to mission-driven purchasers, not Wall Street speculators.

With public events, reports and lobbying, these leaders put HUD, and specifically its head Secretary Julián Castro, in the spotlight for running a program that has been benefitting Wall Street at the expense of communities.  HUD’s “Distressed Asset Sales Program” (DASP) has been conducting bulk auctions of delinquent mortgages to the highest bidder, which has meant 98% of these troubled mortgages have been sold to Wall Street speculators. Local elected leaders and stakeholders now plan to make sure that HUD sells delinquent mortgage pools to mission-driven purchasers.

The persistence of local elected officials and community groups has paid off, and the major changes announced last week are proof of their hard work. This campaign proved particularly timely as prominent Wall Street speculator Blackstone has recently become the largest single family landlord in the country. With more homes in the hands of non-profits instead of Wall Street speculators, communities will gain further control over their neighborhoods and be less at the mercy of Wall Street. Leaders from the Center for Popular Democracy and Local Progress plan to continue to apply direct pressure on HUD on this issue, and continue the fight for housing justice and community control to strengthen and protect neighborhoods across the country.

By CONNIE JACKSON

Source

Source: Bloomberg Business

A tool Congress gave the Federal Reserve to control interest rates has become a hammer for lawmakers to bash the central bank.

Fed Chair Janet Yellen withstood bipartisan criticism at a congressional hearing on Wednesday over the policy of paying the largest financial institutions to keep more funds than required on deposit at the central bank. The Fed doled out $1.7 billion in interest on excess reserves -- known as IOER for short -- to banks in the third quarter.

Congress, which gave the Fed authority in 2008 to pay interest on excess reserves, may be having second thoughts. While the tool helps the Fed raise its benchmark interest rate and simultaneously maintain a $4.5 trillion balance sheet that policy makers say supports the economy, several lawmakers complained to Yellen that IOER is enriching Wall Street.

California Representative Maxine Waters, the ranking Democrat on the House Financial Services Committee, labeled the IOER payments a “massive transfer of wealth from the Federal Reserve to private-sector banks.” Committee Chairman Jeb Hensarling, a Texas Republican, called it a “subsidy.”

In a election year, Yellen was grilled on campaign issues ranging from income inequality to high rates of minority unemployment. Candidates such as Senator Bernie Sanders, a socialist from Vermont who won the New Hampshire Democratic primary Tuesday, are finding that Wall Street-bashing resonates with voters struggling with slow wage increases.

The Center for Popular Democracy, part of a coalition known as Fed Up, said it met with Waters in September and discussed why paying banks interest on excess reserves is troublesome.

‘Anti-Consumer’

“It was a tool that was given to the Fed without ever envisioning an environment of multi-trillion dollar excess reserves,” said Jordan Haedtler, campaign manager for the group. “It’s a pretty crude, anti-consumer tool that rewards big banks.”  

Yellen defended the tool, noting that the flip side of the excess reserves are the Fed’s large asset holdings, which generated many more billions of dollars in remittances to the Treasury. She also warned that extinguishing reserves through asset sales could cause more volatility in financial markets and hurt growth.

“The Federal Reserve has transferred, since 2008 through 2015, roughly $615 billion back to Congress, to the taxpayers, to the Treasury, funds that have contributed importantly to financing the government,” Yellen said.

The Fed created hundreds of billions of excess reserves in the financial crisis as it began to rescue financial institutions such as Bear Stearns Cos. and conduct quantitative easing through direct bond purchases.

Normally, banks would try to dump some of the $2.3 trillion in excess reserves they now hold into overnight lending markets to try earning a return. That would swamp attempts by the Fed to control the federal funds rate and make raising rates difficult.

Bullard’s Warning

By paying a rate above its target rate for federal funds, the Fed can keep those funds out of the market and exert more control over its policy rate. To mop up other excess cash coming from sources other than commercial banks, the Fed uses another tool called reverse repurchase agreements where it uses securities as collateral for short-term loans of cash, thus removing it from the money markets.

The political liability of paying large sums of interest to private banks hasn’t been lost on Fed officials. St. Louis Fed President James Bullard said in August that the strategy would benefit from bipartisan support.

“It’s going to mean fairly large payments to the largest banks in the U.S. and to some foreign banks,” Bullard said in an August interview with Wharton Business Radio’s ”Behind the Markets” program on Sirius XM Radio. “If Congress is not comfortable with that, they should definitely tell us right now.”

Addressing Yellen during the hearing, Waters said, "It looks like we’re about to have some bipartisan concern on this issue."

The Fed chief responded, "I hear that."