Communities Lose When HUD Sells Loans to Wall Street
The Hill - October 2, 2014, Rachel Laforest & Keven Whelan -James Cheeseman and his mother, Constance, have lived in their Rosedale, New York home for the past five years. Like many Americans, they struggled during the recent economic downturn and have been trying to get a modification on their mortgage.
The bank that held their mortgage JPMorgan Chase, agreed to provide borrowers like them relief under a multi-billion dollar settlement with the Justice Department last year. But the Cheesemans' mortgage was insured by the Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD). And before they could work out a deal with Chase, the bank had the FHA sell their loan to a new investor as part of a program, called the Distressed Asset Stabilization Program or DASP.
The program is supposed to have a dual purpose. First, the federal agency hopes to be able to use the funds received by DASP to right the balance sheet of the Federal Housing Authority’s mortgage insurance program. Second, the program is intended to “encourage public/private partnership to stabilize neighborhoods and home values in critical markets.”
According to HUD’s own data and reports, DASP is meeting the first objective and failing miserably at the second. Almost all loans sold through the DASP program went to for-profit firms and only a tiny handful (around 3 percent) of families whose loans were sold ended up with deals that kept them in their homes.
For homeowners like the Cheesemans, that failure has real-life consequences. When HUD, through DASP, sold their mortgage to another servicer, the Cheesemans lost their protections under the FHA program mandating an effort to modify the mortgage. Their new servicer, BSI Financial, was under no requirement to consider a mortgage modification. BSI doesn’t even participate in HAMP, a post-bailout program for major banks that facilitates loan modifications to keep families in their homes. The result? The Cheesemans and thousands of other homeowners throughout the country are at serious risk of losing their home.
A recent report, Vulture Capital Hits Home: How HUD is Helping Wall Street and Hurting Our Communities, published by the Right to the City Alliance and Center for Popular Democracy cited serious problems with DASP. First, the current structure of most DASP auctions considers only the highest bid without weighting the bidder’s track record of good outcomes for homeowners and communities. Secondly, the groups found that the current outcome requirements and reporting structure fail to hold purchasers accountable. Third, the current pre-sale certification phase does not ensure that the FHA modification process has been followed.
Organizations called “Community Development Financial Institutions” with a track record of helping consumers stay in their homes stand ready to be a part of an improved version of this program. If a reformed DASP program incentivized it, investors with a social purpose could also make money by negotiating win-win, sustainable mortgage modifications with homeowners.
But community-friendly organizations can’t even get to the table with the auction overheated by well-heeled Wall Street firms and private equity “vulture capital” firms.
When the highest bidder places profits first, homeowners and neighborhoods come last. The result: more and more American homeowners losing their homes to unnecessary foreclosures and more and more corporate landlords leasing homes at rates few of these former homeowners, let alone anyone else, can afford.
All of this is the consequence of a program developed and managed by HUD, a federal agency with a stated mission to advance affordable housing and sustainable communities.
This week, HUD plans to sell off another 15,000 American homes to Wall Street investors. These are 15,000 families, 15,000 neighbors and 15,000 futures. Many if not all of these homeowners will lose their share of the American dream as a result of these auctions.
HUD can and should halt this week’s sale and must implement the necessary reforms that have been proposed by a range of community and advocacy groups.
As we consider the results of the economic collapse and what has been called by some a recovery, it is important to note once again that many neighborhoods, especially in communities of color, haven’t bounced back.
Too often our government has put the interests of Wall Street above the needs of struggling families. HUD can do better by fixing the “Distressed Assets” program now.
Laforest is executive director of the Right To The City Alliance, based in New York City. Whelan is National Campaign director of the Home Defenders League. He lives in Minneapolis.
