The Real Deal New York

Nonprofit sues federal government, Lone Star over mortgage foreclosures

MFY alleges sale of delinquent mortgages hurts black borrowers

August 15, 2016 06:25PM

Jamaica, Queens

Jamaica

A nonprofit representing low-income New Yorkers filed a lawsuit against the federal department of housing and urban development and private fund manager Lone Star Funds, alleging racial bias in their handling of foreclosures.

The group, MFY Legal Services, claims that the authority’s practice of selling delinquent mortgages to private investors disproportionately hurts black homeowners.

Between 2012 and 2014, the Federal Housing Agency sold roughly 1,100 delinquent, federally insured mortgages on New York City homes to private investors. The sales were part of an effort to relieve financial pressure on a federal fund used to insure mortgages.

The lawsuit alleges that borrowers whose mortgages were sold to private investors face a higher risk of foreclosure, in part through loan modifications. According to the lawsuit, 61 percent of the sold mortgages were in predominantly black neighborhoods like Canarsie and parts of Southern Queens, the New York Times reported.

“This lawsuit exposes that the historic racism that has kept our communities segregated, that has blocked African-Americans from sustainable homeownership, and that increases the racial wealth gap in this country is still alive and well,” MFY’s supervising attorney Elizabeth Lynch told the Times.

In June, the city’s department of Housing Preservation and Development said it had bought some delinquent mortgages from the federal agency to prevent their sale to investors. “We are fighting to help homeowners stay in the neighborhoods they helped build,” Mayor Bill de Blasio said at the time.

Lone Star and its mortgage servicing subsidiary, Caliber Home Loans, has foreclosed on more than 14 percent of the 17,000 loans the company picked up at auction from HUD in 2014, with at least 3,200 additional moves to foreclose in the years since, a Times analysis in June showed.

Lone Star, among the country’s biggest buyers of delinquent mortgages, has been accused by housing advocates of being inflexible on modifying mortgages and choosing to foreclose on homeowners whenever it’s most profitable.

The lawsuit comes as traditional lenders increasingly focus mortgage operations on jumbo loans, which has contributed to blacks and Hispanics often finding themselves at a disadvantage, the Wall Street Journal recently reported. The loans, which aren’t backed by Freddie Mac or Fannie Mae, are generally offered to more affluent customers with stronger credit histories, who tend to be white or Asian. [NYT] – Konrad Putzier

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