Written by – Adam Deutsch, Esq., Denbeaux and Denbeaux
The U.S. Housing and Urban Development Department (“HUD”) issued a report on Friday March 13, 2015 touting the success of a program in which it claims to have sold $16.7 billion in nonperforming mortgage loans. In all, HUD states that it sold 79,029 loans and that 16,700 homes avoided foreclsoure. This sounds great, but the numbers don’t add up. According to Bloomberg.com only 16% of the delinquent loans have been modified into performing loans. Sixteen percent of 79,029 is roughly 12,644.64 leaving a difference of 4,000 loans. Having carefully chosen to assert that 16,700 homes avoided foreclosure it is plausible that HUD believes any resolution other than a judgment and forced eviction is an avoided foreclosure and a net positive.
The bigger story is that HUD is acknowledging in the press that it owns and sells mortgage loans. This is not a new fact, however I have never seen a single situation in which HUD has notified a homeowner that it is selling a loan. Nor am I aware of any situation in which an entity purchasing a loan from HUD has notified a homeowner that it has acquired ownership of the loan from HUD. Under the Truth in Lending Act 15 U.S.C. 1641(g) within “30 days after the date on which a mortgage loan is sold or otherwise transferred or assigned to a third party, the creditor that is the new owner or assignee of the debt shall notify the borrower in writing of such transfer.” Such notices typically set forth the prior owner of the loan, in this case HUD. In fact, I have only seen one circumstance in which HUD even executed an assignment of mortgage, and in that case the assignment was not recorded with the county but was instead kept confidential by HUD and the loan servicing company.
What makes this important is that homeowners who have loans owned by HUD are often entitled to rights not otherwise guaranteed. Rights include access to loan counseling and modification programs. An example of such rights is the requirement that the owner of most FHA insured loans conduct a face-to-face interview with a delinquent borrower prior to the loan becoming three months past due and before commencing any foreclosure proceeding. 12 CFR 203.604. As with any rule there are exceptions, however in almost all circumstances the creditor must make a minimum of “reasonable effort” to conduct the meeting. I am unaware of any client having been contacted by an FHA lender or by HUD to conduct a face to face interview.
The fact that I have not seen HUD and its loan servicing companies abide by its own rules is problematic. Denbeaux & Denbeaux has many clients with FHA loans, this is not an issue of scarcity within the sampling pool. These days it seems that only the CFPB has an interest in enforcing federal regulations relating to loan ownership and servicing. If HUD does not make sure it abides by the federal law, it is no wonder the marketplace continues to be filled with blunders by loan servicing companies and secondary market creditors.
Adam Deutsch, Esq.Senior Associate AttorneyDenbeaux & Denbeaux366 Kinderkamack RoadWestwood, NJ 07675(Main Firm) 201-664-8855(Direct Line) 201-664-9167(Fax Line) 201-666-8589
(Bloomberg) — The sale of $16.7 billion in nonperforming loans by the U.S. Housing and Urban Development Department helped the owners of about 16,700 homes avoid foreclosure, the agency said.
Almost half of the 79,029 loans for which HUD has received reports were resolved as of Feb. 6, meaning they are no longer considered nonperforming after having gone through foreclosure or another outcome, the department said in a report released Friday. About 44 percent of resolutions resulted in the prevention of home seizures, and 16 percent of resolved loans were reperforming, with borrowers making timely payments.
The program “is meeting its intended goal of minimizing losses” to the mortgage-insurance fund, HUD said in the report. “Without the note-sale program, all of these loans might be foreclosed upon.”
HUD started auctioning groups of delinquent mortgages in 2010 as increasing foreclosures led to losses in the Federal Housing Administration’s mortgage-insurance fund. Friday’s report is the second to assess the results of the loan sales, following an initial report last August. The sales, aimed at reducing taxpayer losses, have garnered interest from Wall Street firms competing to buying housing debt after a rebound in real estate prices.
A total of 98,007 loans have sold since the program began in 2010, with $13 billion of debt in national pools and $3.7 billion in local portfolios, HUD said on Friday.
Climbing home values have prompted bidders for delinquent loans to raise their offers. Increased interest in the debt has also spurred mortgage company Freddie Mac and lenders such as Bank of America Corp. and Citigroup Inc. to accelerate their sales of soured debt this year.
The biggest buyers of HUD’s national loan pools have been Lone Star Funds, founded by billionaire John Grayken; Bayview Asset Management LLC, a Coral Gables, Florida-based company backed by Blackstone Group LP; and Selene Finance LP, founded by mortgage-bond pioneer Lew Ranieri. The largest buyers of local pools, with stricter requirements to meet goals that help stabilize neighborhoods, have been Bayview, Los Angeles-based investment company Oaktree Capital Management and Corona Asset Management, a Redondo Beach, California-based investment group.
“We’ll continue to bid,” Scott Shultz, managing director of 25 Capital Partners, a Charlotte, North Carolina-based firm that has bought about $1 billion of nonperforming loans since 2013, said in a telephone interview. “For us, the best outcome is to get the borrower to reperform and get back on their feet.”
As of December, about 38 percent of the borrowers in a pool of 641 Chicago loans that 25 Capital Partners purchased in 2013 were performing after modifications, Shultz said.
Friday’s HUD report leaves important questions unanswered about the auction program’s impact on communities and the performance of investors who purchased most of the debt, said Julia Gordon, an analyst with the Center for American Progress in Washington.
“To improve the program’s impact on families and communities, HUD should ensure greater involvement of community-based nonprofits in the sales, require buyers to prioritize home-retention solutions over other foreclosure-prevention alternatives, and track loan outcomes even if the loan is sold to another investor,” Gordon said in an e-mail.
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