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New York launches "first of its kind" program; will buy delinquent mortgages from FHA

NYC set to buy loans to keep homeowners out of foreclosure

Brooklyn Bridge

In what officials are calling a “first of its kind” program, the city of New York announced Thursday that it is plans to buy a number of delinquent loans from the Federal Housing Administration as part of an effort to keep struggling homeowners from losing their homes to foreclosure.

According to the office of New York Mayor Bill de Blasio, the “Community Restoration Program” will see the city purchase 24 distressed mortgages for one- to four-family homes – with a total of 41 residential units – in the Bronx, Brooklyn, Queens, and Staten Island.

The goal of the program? According to de Blasio’s office, the program is designed to stabilize neighborhoods that are not yet recovered from housing crisis.

And what makes this program unique, according to de Blasio’s office, is that marks “one of the first times” that a municipality buys distressed Federal Housing Administration mortgages that would otherwise have been sold at auction to the highest bidder.

“We are fighting to help homeowners stay in the neighborhoods they helped build. And we won’t let predators force them out,” said Mayor Bill de Blasio. “The Community Restoration Program is the first of its kind, and it puts government squarely on the side of struggling families so they can keep their homes.”

The program will cost $13 million, which is being funded by a combination of several sources.

According to de Blasio’s office, the $13 million program is being funded with $1 million in seed money allocated by the New York City Council, $6.9 million in private financing from Goldman Sachs’ Urban Investment Group, and a $2.2 million grant from the Local Initiatives Support Corporation, a major national affordable housing group, that was funded by a bank settlement obtained by the New York State Attorney General.

The program will also be funded by $2.9 million received from Morgan Stanley as part of their $3.2 billion settlement for “deceptive” mortgage bond practices, which was announced in February.

According to details release by New York State Attorney General Eric Schneiderman at the time, New York State was to receive $150 million from Morgan Stanley as part of the settlement.

According to de Blasio’s office, this plan was initially launched in 2015, after the Department of Housing and Urban Development announced changes to the DASP program that gave cities the opportunity to buy pools of distressed FHA mortgage notes for one-to-four family properties located in their jurisdiction through a direct sale instead of through an open auction to the highest bidder.

In response to those changes to the DASP program, New York began working with the Center for NYC Neighborhoods, MHANY Management, Neighborhood Restore Housing Development Fund Corporation, the National Community Stabilization Trust, and Preserving City Neighborhoods Housing Development Fund Corporation, to create this program.

According to de Blasio’s office, the program will “strive to achieve neighborhood stabilization outcomes” for 100% of the notes, which would “far surpass” the 50% required by the federal government when distressed mortgages are sold at an open auction.

“Preserving affordable housing is essential for the health of our families and the economic strength of our communities and that’s why New York City’s Community Restoration Program is so important,” said Sen. Charles Schumer, D-NY, who took part in the announcement.

“The acquisition of two dozen distressed FHA-insured mortgages will undoubtedly help keep New Yorkers in their homes and neighborhoods throughout New York City,” Schumer continued. “Thank you to Mayor de Blasio and all of the partners involved in what is the first-ever effort of its kind by a municipality.”

According to de Blasio’s office, after purchasing the mortgages, the non-profit partner organizations will do “active outreach” and work one-on-one with homeowners, providing counseling and identifying potential solutions to keep current homeowners in their home.

The primary goal is home retention through mortgage modification or refinancing, de Blasio’s office said. “When neither is feasible, for example if a home has been abandoned or a homeowner is not eligible for a modified loan, the fund will work to ensure that the homes are repositioned as affordable homeownership or rental housing opportunities,” de Blasio’s office added.

“With this program, New York continues to lead the path forward in our collective efforts to rebound from the depths of the foreclosure crisis,” Schneiderman said.

“It’s one more tool in the City’s and State’s arsenal for preserving affordable housing and helping homeowners still reeling from the housing crash,” Schneiderman continued.

“It makes sure that the settlements my office secured from banks are used to mitigate the damage they caused,” Schneiderman added. “And it ensures that distressed mortgages don’t end up in the hands of the highest bidders whose goal is to profit off other people’s losses. My office is proud to partner with the City and our non-profit partners in this innovative program that helps balance the scales of justice.”

The announcement comes on the heels of the FHA announcing a series of changes to its non-performing loan sale program, called the Distressed Asset Stabilization Program, under which the FHA sells off deeply delinquent loans to private investors.

One of the changes to the DASP program announced earlier this week by the FHA is a “streamlined” effort to sell non-performing loans directly to “interested government entities and local governments.”

And according to de Blasio’s office, this most likely won’t be the last time that the city of New York steps up to buy delinquent loans from the government.

“The goal of the program is to preserve affordable homeownership and rental opportunities in neighborhoods that continue to have high rates of foreclosure and underwater loans,” de Blasio’s office said in a statement.

“While the overall housing market in New York City is strong, a number of neighborhoods have yet to recover from the collapse of the housing market during the Great Recession nearly 10 years ago,” de Blasio’s office continued. “Through targeted intervention in these areas, the program begins to address the negative economic and physical effects caused by distressed properties in foreclosure, while maintaining existing and creating new affordable homeownership and rental opportunities.”

According to de Blasio’s office, this program is structured so that revenue and savings from the “successful repositioning” of the struggling homeowners can be reinvested for future acquisitions of distressed notes from the federal government.

Additionally, de Blasio’s office said that the program will “serve as a model for cities around the nation seeking to purchase distressed mortgages from the federal government as a strategy for preserving affordable housing and stabilizing neighborhoods.”

This announcement also marks the second time in two months that New York announced plans to use funds from a massive crisis-era settlement to help homeowners in the state.

In May, Schneiderman announced that the state plans a $100 million expansion of its Mortgage Assistance Program, which provides New Yorkers with zero-interest loans that they can use to “pay off small debts that are preventing them from securing a needed mortgage modification.”

The funds for that program are coming from Goldman Sachs and its $5 billion toxic mortgage settlement. Part of that settlement included $1.8 billion in consumer relief and a payout of $190 million to the state of New York.

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