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Home appraisal’s ugly history and uncertain future

This is Part I of a deep dive into the home appraisal industry. Today we explore the origins of the appraisal industry and its current lack of diversity.

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Housing advocates: FHFA won’t reduce principal, offers discounted NPLs

Auctions benefit Wall Street and hurt low-income communities

Two liberal advocacy groups have published a provocative study accusing the Department of Housing & Urban Development and the Federal Housing Finance Agency of helping Wall Street at the expense of low-income communities by selling non-performing loans to investors.

The Center for Popular Democracy and the ACCE Institute’s report “Do Hedge Funds Make Good Neighbors?:  How Fannie Mae, Freddie Mac and HUD are Selling Off Our Neighborhoods to Wall Street” is lengthy and accusatory.

The study looks at how HUD has since 2012 auctioned off, at a discount, some 120,000 Non-Performing Loans that they want to get off their books.

They also take into account similar actions by the FHFA through Fannie Mae and Freddie Mac, which have sold over 10,000 mortgages already this year. 

The study, which can be read here, notes that nearly all of the roughly 130,000 mortgages have been sold to Wall Street hedge funds and private equities firms, leading to what they call the rise of a new phenomenon in this country – Wall Street as major landlord and neighbor in communities across the country.

“An initial examination into four of the largest purchasers of HUD and FHFA loans has unearthed an array of disturbing business practices, ranging from those that clearly run counter to the goals of homeownership preservation and neighborhood stability to those that break laws, deceive homeowners, and harm taxpayers more generally,” the study claims. 

The authors argue that HUD and FHFA should sell these troubled mortgages to entities working to preserve homeownership and create affordable housing, not to Wall Street speculators with a history of defrauding taxpayers and harming homeowners, tenants and neighborhoods.

“Nearly eight years after the start of the global financial crisis, hedge funds and private equity firms have found yet another way to make big profits: distressed housing assets. Often, the very same corporate actors that precipitated the housing crash in the first place are buying and selling off delinquent mortgages and vacant houses that are a product of the crash,” the study says. “Together, these Wall Street entities have raised over $20 billion to buy the notes for as many as 200,000 homes in the United States. The newly consolidated single-family rental market is a lucrative business. A 2014 study estimated that the four largest holders of these assets have seen as much as a 23% rate of return on the properties they purchased in the last three years.”

However, HUD has been making changes to how it deals with distressed assets and NPL sales.

Just two months ago, HUD announced significant changes to its Distressed Asset Stabilization Program. HUD also announced additional improvements to the Neighborhood Stabilization Outcome sales portion of DASP which are aimed at increasing non-profit participation.

Updates include giving non-profits a first look at vacant properties, allowing purchasers to re-sell notes to non-profits, and offering a non-profit only pool.

Previously, loan servicers could foreclose 6 months after they received the loan and were encouraged, though not required to assess a borrower’s qualifications for loss mitigation programs. Purchasers of the geographically targeted neighborhood stabilization pools have always been required to ensure that at least 50% of the loans in a pool achieve outcomes that help areas hardest hit by foreclosure avoid the neighborhood decline associated with numerous vacant properties.

“These changes reflect our desire to make improvements that encourage investors to work with delinquent borrowers to find the right solutions for dealing with the potential loss of their home and encourage greater non-profit participation in our sales,” said Genger Charles, Acting General Deputy Assistant Secretary, Office of Housing, when it was announced. “The improvements not only strengthen the program but help to ensure it continues to serve its intended purposes of supporting the MMI Fund and offering borrowers a second chance at avoiding foreclosure.”

The groups are calling on HUD and FHFA to “establish much higher standards and criteria for the kind of companies that are eligible to purchase delinquent mortgages” and to “prioritize companies that have a clearly defined program to offer permanent modifications with principal reduction and to create affordable housing with vacant properties.” ?

They also want FHFA to “immediately begin to offer principal reduction in their own modification process.”

“Two distinct paths forward are available: the abuses of the biggest purchasers to date of the HUD and FHFA non-performing loans; or, the approach of community development financial institutions with both the ability and the commitment to create affordable housing to better local communities. The status quo benefits the very actors that hastened the financial crisis and actively created the conditions that sucked over half the wealth from millions of American families. These companies profit from new predatory practices and speculative business models that once again take advantage of ordinary people,” the study concludes. 

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