It has been nearly a decade since the mortgage crisis exploded in the U.S. and it does not appear to be over yet! While federal lawmakers implemented laws to aid homeowners avoid foreclosure, relief often came too late for many. However, although the housing market is making a noticeable come back, banks appear to be more reluctant to lend to buyers. After being hit with hefty penalties for the handling of mortgage modifications and foreclosures, banks are now less willing to provide mortgage loans to their clients. For this reason, private equity firms and hedge funds have bought more than 100,000 troubled mortgages from banks and federal agencies at a discounted price. Sometimes these discounts are up to 30%. Initially, this pleased the Federal Housing Officials. They believed that the new financial firms had found ways to make more creative options available to troubled borrowers. However, it recently came to the attention of the of housing advocates and lawyers for borrowers that many private equity firms and hedge funds have actually been less effective than banks in offering loan modifications to borrowers and may be more likely to push mortgages into foreclosure.
One example, Lone Star Funds is a private equity firm which was founded in 1995 by John Grayken. It is a $60 billion dollar operation. The mortgage servicing department of Loan Star, Caliber Home Loans, received numerous complaints concerning the way they serviced their loans. Borrowers, housing advocates, and lawyers have uncovered a pattern of grievances citing the hedgefunds for being quick to begin foreclosure proceedings, regardless of how they obtained the loans.
Dozens of lawmakers recently signed and sent a letter to housing regulators admonishing them to disqualify aggressive investors such as Loan Star Funds and its subsidiary Caliber Home Loans from being permitted to purchase distressed loans. The letter which was addressed to both the Housing and Urban Development Secretary, Julián Castro, along with the Federal Housing Finance Agency Director, Melvin L Watt, states: “Entities that pay lip service to legitimate loan modification requirements while engaging in unfair or abusive practices toward borrowers should not be able to use government programs to profit from the continuing legacy of the financial and foreclosure crisis.”
Lawmakers are asking the federal agencies to consider selling the loans to agencies that are committed to foreclosure prevention. They would also like the agencies to provide greater detail regarding the loan sales, including the criteria that is currently being used to determine which loans go into the group of loans that are put up for auction. They have similarly requested data on how vacant properties are treated as compared to properties that are occupied.
Although the mortgage crisis has not come to a complete end, lawmakers are striving to protect the rights of homebuyers. If you are a financial institution that wants to ensure that you are following the proper legal requirements, you may want to enlist the aid of a qualified business attorney who will be able to discuss what legal steps you will want to take.
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