Continuing Casualties of the Housing Market Crash

The housing crisis was a nationwide banking emergency that coincided with the US’s recession in December 2007. The housing bubble burst, which resulted in a steep decline in home prices; this drastic dip led to an insurmountable number of mortgage delinquencies and eventual foreclosures throughout the late 2000s.

But despite nearly a decade having passed, America’s housing market is still very much in recovery after its unprecedented crash. Distressed mortgages continue to fall prey to mishandling and bad faith, particularly at the hands of hedge funds and private equity firms that are “quick to push loans into foreclosure” and shirk on their promises to “keep owners in their homes.”

Since the crash, lawmakers have been drafting letters to housing regulators calling for reform, and lobbyists have remained steadfast in their efforts to advocate for change on both local and national levels in response to the high number of distressed mortgage purchases by hedge funds and private equity firms. Their latest endeavor, a letter signed by 45 lawmakers, calls for the disqualification of aggressive investors from the sales of distressed mortgages from the Federal Housing Administration, Fannie Mae, and Freddie Mac. In particular, the letter seeks reform by requiring more transparency: it asks mortgage proprietors, such as private equity firm Lone Star Funds, to “provide more details about loans sales and their outcomes.”

Lone Star Funds and its subsidiary Caliber Home Loans have been criticized in recent months by both housing advocates and housing lawyers for being “too quick to foreclose on delinquent borrows [and loathe] to negotiate with borrowers . . . to make loans more affordable,” according to the New York Times. Although Caliber promises its clients “the best possible service” and touts that allowing borrowers to stay in their homes is its “top priority,” recent crackdowns led by the New York Attorney General indicate otherwise. According to the federal Consumer Financial Protection Bureau, the mortgage company accumulated more than 1,000 customer complaints, with many filed in 2015 alone.

This letter, addressed to the Housing and Urban Development secretary, Julián Castro, and the Federal Housing Finance Agency director, Melvin L. Watt, proposes the following: “Entities that pay lip service to legitimate loan modification requirements while engaging in unfair or abusive practices towards borrowers should not be able to use government programs to profit from the continuing legacy of the financial aid and foreclosure crisis.” In other words, because public policy interests weigh in favor of remedying the effects of the housing crisis, agencies should solicit more disclosure from mortgage companies and bar those that have been proven to be working against their clients’ best interests.

Additionally, the letter states, there should also be greater disclosure regarding loan sales; particularly, the criteria and methodology used to categorize assets up for auction and how vacant properties are treated in comparison to occupied properties. Although it is still too soon to tell how much of an impact lawmakers have made with this latest effort, one cannot deny that extra precaution must be taken to mitigate the chances of it happening again.