Housing advocates have attracted a prominent ally in their push to change the federal government’s policy of selling distressed mortgages at a discount to private equity firms and hedge funds.

Senator Elizabeth Warren, Democrat of Massachusetts, will join other lawmakers, advocates and community activists on Wednesday in a Washington rally to oppose the loan sale program.

The senator is expected to call on the Department of Housing and Urban Development and the federal overseer of Freddie Mac and Fannie Mae to make it easier for nonprofit organizations to bid for the bundles of distressed mortgages put up for auction, people briefed on the matter said.

The sale of distressed mortgages by HUD and the government-sponsored mortgage finance firms is drawing growing criticism from housing advocates and lawyers in recent months. The critics are concerned that the private buyers of distressed mortgages are moving to quickly to put borrowers into foreclosure as opposed to modifying the loans as housing officials had hoped.

The investors are buying loans often at a 30 percent discount.

One of the biggest buyers of distressed mortgages is Lone Star Funds, a $60 billion private equity firm based in Dallas. The firm, which is also buying soured mortgages directly from banks, has raised billions of dollars from investors, including public pensions to invest in distressed home loans.

The private equity firm’s practices in dealing with delinquent borrowers was the subject of a front-page article in The New York Times this week.

The housing advocates said that, in addition to noon rally with elected officials, they intended to protest outside of Lone Star’s offices in Washington.

Source: New York Times