Nonprofits take second to hedge funds on FHA loan sales

2 years into sales, little goes to communities

As hedge funds reap the benefits from the Federal Housing Administration’s sale of distressed loans, nonprofits are being pushed to the side, unable to compete. Per Bloomberg:   

The FHA started selling distressed loans in 2012 to help communities hit hard by foreclosures while also reducing losses to its taxpayer-backed insurance fund.

“Large pools allow the Lone Stars and Bayviews to marginalize small, neighborhood-focused bidders,” said Sharon Pratt, a former mayor of Washington D.C. and chief executive officer of Home Preservation Exchange, a nonprofit focused on neighborhood stabilization. “The present-day auction system makes it very difficult for small enterprises to compete and every bit as important — have an impact on targeted neighborhoods.”

Meanwhile, the article noted that the latest reports on the loan sales show the program has benefited the insurance fund more than the communities, as hedge funds and private equity-backed investors drive up prices for the loans they buy with few strings attached.

Nonprofits and community development organizations have won auctions for 1.4 percent of the soured debt, mostly in early rounds of the sales. They didn’t win any of the 10 neighborhood stabilization pools sold in June with $695 million in debt on 4,224 homes.


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