The Real Deal New York

HUD improperly sold $18B worth of distressed mortgages: audit

Agency didn’t disclose rules and procedures to public, Inspector General says
July 26, 2017 01:15PM

From left: Julian Castro, Ben Carson and Shaun Donovan (Credit: Getty Images)

The federal Department of Housing and Urban Development sold 108,000 distressed mortgages to private buyers without giving the public a chance to comment on the program, a new audit by the Office of the Inspector General found.

And increasing criticism over the initiative could pave a legal path for homeowners who have not yet lost their homes to avoid pending foreclosures, the New York Times reported.

HUD sold $18 billion worth of distressed mortgages at auctions during a seven-year period under the Obama administration without publishing “formal guidance” or procedures, the Inspector General found.

Critics have said that private buyers who snapped up the mortgages moved too quickly to foreclose on homes. The biggest buyers include Bayview Asset Management, Lone Star Funds, Angelo Gordon and Selene Residential Partners.

A lawsuit filed by New York-based advocacy group Mobilization for Justice Inc. singled out Lone Star, claiming its mortgage firm, Caliber Home Loans, offered five-year loan modifications that ballooned in the sixth year.

“It is disturbing to me that HUD seems committed to not doing rule making with notice and comment,” said Geoff Walsh, a lawyer with the National Consumer Law Center. “This is consistent with past practice of keeping homeowners out of the picture as much as possible.”

HUD, which under the Obama administration was run by secretaries Shaun Donovan and Julian Castro and is now headed by President Trump’s appointee Ben Carson, released a statement in response to the Inspector General report saying it had put in place rules for the mortgage sales, but acknowledged that they were not “formalized in one single centralized document.”

Attorneys said it would be hard to find a judge who would reopen a completed foreclosure case, but said that homeowners who have not yet faced foreclosure might have recourse by filing a claim against HUD. [NYT]Rich Bockmann