Senator Elizabeth Warren, Democrat of Massachusetts has joined other lawmakers and advocates in the fight to change the federal government’s policy of selling distressed mortgages at a discount to private equity firms and hedge funds. The senator has called on the Department of Housing and Urban Development and the Federal Housing Finance Agency (that oversees Freddie Mac and Fannie Mae) to make it easier for nonprofit organizations to bid for bundles of distressed mortgages put up at auction.
The sale of these distressed mortgages by HUD has come under increased scrutiny recently as critics are concerned that private buyers of distressed mortgages are moving quickly to foreclose on borrowers, instead of modifying the loan terms. Oftentimes, the investors are purchasing the loans at a discount of up to 30 percent.
Ms. Warren has accused HUD and the F.H.F.A. of “lining up with the Wall Street speculators.” “Wall Street is interested in profits, not in working out a way for people to stay in their homes,” she continued.
In a blog posted last week, we discussed the disadvantages of these private equity firms’ practices in dealing with delinquent borrowers. One of the biggest buyers of distressed mortgages is Lone Star Funds, a $60 billion private equity firm. Housing advocates say that in addition to the rally with elected officials, they plan to protest outside Lone Star’s offices in Washington.
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