Affordable housing advocates led by Sen. Elizabeth Warren, D-Mass., and Rep. Mike Capuano, D-Mass., took to the streets Wednesday afternoon to protest what they call the “sell-off of mortgages to Wall Street speculators,” which they say disproportionately has a negative impact on blacks and Hispanics.
They rallied in front of the Federal Housing Finance Agency to protest REO investment and non-performing loan sales, to demand principal reduction, and to denounce Wall Street and the whole of federal housing policy on distressed borrowers and foreclosures.
One issue early on: what the advocates were askin, the FHFA already does, or at least requires for buyers of non-performing loans.
“Neighborhood stabilization is an important priority that we all share and FHFA welcomes all perspectives on the issue. Director Watt is meeting with local elected officials and housing advocates. We are not at odds; a constructive dialogue is welcomed,” a spokesperson for FHFA said.
Specifically on the point of the sales of non-performing loans, the FHFA has gone out of its way to accommodate the concerns of affordable housing advocates, FHFA says.
“The new NPL sale guidelines for Fannie Mae and Freddie Mac [which FHFA oversees] aim to both reduce risk to taxpayers and achieve better outcomes for borrowers,” an FHFA spokesperson said. “The guidelines require NPL purchasers to evaluate all borrowers for loan modifications and to pursue foreclosure only as a last resort.
“Fannie Mae and Freddie Mac have been very transparent about their NPL sales programs and have hosted training sessions encouraging non-profits and minority- and women-owned businesses to participate as NPL buyers. This is evident by Fannie Mae’s recent sale of NPLs to New Jersey Community Capital,” the spokesperson said.
Housing and Urban Development executives also met with protesters earlier Wednesday.
“This morning, my senior team and I met with a group of local community-based leaders to discuss the important issues related to the lingering effects of the foreclosure crisis that continue to grip certain neighborhoods across the nation,” said Edward Golding, HUD’s Principal Deputy Assistant Secretary for the Office of Housing, in a written statement. “We discussed how HUD and [Federal Housing Administration] might make better use of one of its tools, the Distressed Asset Stabilization Program, to further the Department’s goal of stabilizing communities and assisting them as they, and their public-minded partners, work to address severely distressed mortgages that are on the verge of foreclosure.
“FHA recently made significant changes to this program, including expanding our outreach to participating nonprofit organizations and requiring a 12-month delay in finalizing any foreclosure action to allow struggling families a greater opportunity to remain in their homes or find another sustainable housing solution,” Golding said. “This meeting offered an important, constructive and meaningful opportunity to discuss broad goals we support with these community leaders. We are, and will continue to be, a strong and consistent supporter of those who toil on the front lines of our housing recovery.”
The guidelines the FHFA spokesperson cited were issued in March of this year. These enhanced non-performing loan requirements for sales of NPLs by Freddie Mac and Fannie Mae were specifically designed to reduce the risk to taxpayers by transferring it to the private sector.
FHFA said in its announcement that it believes that the sale of severely delinquent loans through NPL sales will reduce GSE losses and improve borrower and neighborhood outcomes.
"FHFA expects that with these enhanced requirements, NPL sales by Freddie Mac and Fannie Mae will result in more favorable outcomes for borrowers and local communities, while also reducing losses to the Enterprises and, therefore, to taxpayers," said FHFA Director Melvin Watt in a written statement in March. "Under the requirements announced today, servicers must consider borrowers for a range of alternatives to foreclosure," Watt said.
The enhanced NPL sale requirements draw upon the experience of Freddie Mac’s two pilot sales of NPLs last year and this year. The loans in these two transactions have an aggregate value of approximately one billion dollars in unpaid principal balance.
The loans included in NPL sales will generally be severely delinquent – typically more than one year past due. FHFA’s goal is to achieve more favorable outcomes for the Enterprises and for borrowers by providing alternatives to foreclosure wherever possible. In addition, reporting by servicers on borrower outcomes will be required after the transactions close, which will allow the Enterprises to document whether the desired outcomes are being achieved.
NPL sales since the March announcement have had to meet these enhanced requirements, which include the following:
Bidder qualifications: Bidders will be required to identify their servicing partners at the time of qualification and must complete a servicing questionnaire to demonstrate a record of successful resolution of loans through alternatives to foreclosure;
Modification requirements: The new servicer will be required to evaluate all pre-2009 borrowers (other than those whose foreclosure sale date is imminent or whose property is vacant) for the U.S. Department of the Treasury’s Making Home Affordable programs, including the Home Affordable Modification Program (HAMP). All post-January 1, 2009 borrowers (other than those with an imminent foreclosure sale date or vacant property) must be evaluated for a proprietary modification. Proprietary modifications must not include an upfront fee or require prepayment of any amount of mortgage debt, and must provide a benefit to the borrower with the potential for a sustainable modification;
Loss mitigation waterfall requirements: Servicers must apply a waterfall of resolution tactics that includes evaluating borrower eligibility for a loan modification (HAMP and/or proprietary modification), a short sale, and a deed-in-lieu of foreclosure. Foreclosure must be the last option in the waterfall. The waterfall may consider net present value to the investor;
REO sale requirements: Servicers are encouraged to sell properties that have gone through foreclosure and entered Real Estate Owned (REO) status to individuals who will occupy the property as their primary residence or to non-profits. For the first 20 days after any NPL that becomes an REO property is marketed, the property may be sold only to buyers who intend to occupy the property as their primary residence or to non-profits;
Subsequent servicer requirements: Subsequent servicers must assume the responsibilities of the initial servicer;
Bidding transparency: To facilitate transparency of the NPL sales program and encourage robust participation by all interested participants, each Enterprise will develop a process for announcing upcoming NPL sale offerings. This will include an NPL webpage on the Enterprise’s website, email distribution to small, non-profit and minority- and women-owned business (MWOB) investors, and proactive outreach to potential bidders. Additionally, each Enterprise will host training sessions for interested non-profit and MWOB investors to facilitate better understanding of the NPL sales process. The Enterprises will also offer small pools of NPLs, where feasible;
Reporting requirements: NPL buyers and servicers, including subsequent servicers, are required to report loan resolution results and borrower outcomes to the Enterprises for four years after the NPL sale. These reports will help inform whether to make future changes to NPL sales requirements and determine whether an NPL buyer and NPL servicer continue to be eligible for future sales based on pool level borrower outcomes, adjusted for subsequent market events. Consistent with applicable law, FHFA and/or the Enterprises will provide public reports on aggregate borrower outcomes at the pool level.