80 Organizations Ask Federal Gvt. to Address Investor Cash Flooding Into Neighborhoods

Regulators Should Act Now to Protect First-Time Homebuyers, Renters, and Communities

March 4, 2014-California: Eighty organizations are calling on federal regulators to address first-time homebuyers being outbid, tenants being displaced, and neighborhoods undergoing dramatic changes as private equity and investor cash continues flooding into local housing markets, buying up homes. These problems have been worsened by banks withholding REOs from the market and federal housing agencies conducting bulk sales of foreclosed homes and distressed mortgages. One portfolio of single-family rental homes was securitized this fall, though both Fitch Ratings and Standard and Poor’s refused to grant AAA ratings to the securitization, citing numerous uncertainties with this new business model.

Kevin Stein, Associate Director of the California Reinvestment Coalition, explains:“There are some eerie parallels between what’s happening now and the mortgage meltdown. In both cases, the overarching similarity is a drive for higher and higher profits without regard for harmful impacts on families and communities. That’s why we’re ringing the alarm bell now and asking regulators to act. Wall Street and other cash investors are making it harder for families to buy their first house, for renters to stay in their communities, and for neighborhoods to recover.”

Maeve Elise Brown, Executive Director of Housing and Economic Rights Advocates, comments: “In California,we saw what happened when Wall Street’s latest and greatest ideas exploded into a wave of foreclosures that hurt homeowners, tenants, and local communities and cost our economy hundreds of billions of dollars in damage. That’s why we’re asking HUD, the OCC, the Federal Reserve, the FHFA, and the SEC to get ahead of this problem. If they don’t implement safeguards now, we will have another housing crisis to clean up.”

Advocates raised a number of concerns in their letter to regulators, including:

·Worse outcomes for borrowers and communities of color:
Low income borrowers and borrowers of color are harmed when banks don’t provide equal access to mortgage modifications, don’t maintain REO properties(affecting communities and potential first-time homebuyers), and when first-time homebuyers with FHA loans are shut out of the market;

·First time homeowners locked out of the market due to “all-cash” offers from investors, and banks artificially inflating housing values by not releasing REO properties;

·A lack of regulatory oversight for new investor landlords; and

·Government housing agencies contributing to the problem by conducting bulk sales of properties and mortgages- a practice that favors large investors to the detriment of homeownership, long-term tenancy, and stabilized communities.

Recommendations include:

·Prioritize keeping existing families in their homes: FHFA and FHA should ensure that existing GSE and FHA rules for loan modifications are followed; FHFA needs to increase flexibility so homeowners with mortgages owned by Fannie Mae and Freddie Mac can fully participate in the “Hardest Hit Funds” programs;and the CFPB, FHFA, and other bank regulators need to scrutinize servicing and foreclosure practices of companies who may have business incentives to favor foreclosure over modifications;

·Examine disparate impacts on communities of color created by banks favoring cash investors over homebuyers with FHA loans, and from banks not properly maintaining REOs, which can violate the Fair Housing Act, and also decreases the chances a homebuyer with an FHA loan will be able to purchase it;

·Protect tenants from displacement: FHFA should ensure that GSE servicers and agents are complying with anti-eviction and habitability rules in REO properties; tenants should be offered two-year leases on GSE properties that become REOs; policies should be developed to address unaffordable rent increases by investor landlords; and the CFPB should begin enforcing the Protecting Tenants at Foreclosure Act;

·Suspend bulk sales: FHFA and HUD should suspend their bulk sales of homes and mortgages until they can carefully analyze potential fair housing issued created by bulk sales (and release this data publicly); FHA should consider preferences for selling distressed loans to nonprofits who will prioritize homeownership; Banks should be incentivized to sell distressed loan pools and REOs to nonprofit organizations, thus prioritizing homeownership and stability; and

·Ensure ratings are accurate for securitizations: The SEC and other regulators must demand transparency and accuracy in any ratings given to rental income securitizations to ensure investors are not unwittingly financing another housing bubble;

Additional Background

The sign-on letter can be accessed by clicking on this link.

Unequal Access to Mortgage Help: The Government Accountability Office released a report in February that advocates believe raises red flags about mortgage relief not getting to all communities equitably: “GAO’s analysis of HAMP loan-level data for four large MHA servicers identified some statistically significant differences in the rate of denials and cancellations of trial modifications and in the potential for redefault between populations protected by fair lending laws and other populations.”

Analysis of First Rental Property Securitization: The Center for American Progress recently released a report:“When Wall Street Buys Main Street.” In their analysis of the first ever mortgage-backed security supported by revenue from single-family rental properties, they note the bond will mature in two to five years. The authors cite concerns from Fitch Ratings about a “worst case scenario” if Invitation Homes is unable to pay back the bondholders when the bond matures, in which case they could be forced to conduct a mass sell-off of homes,with likely impacts on tenants and property values.

Differences in REO maintenance: On February 25, 2014, the National Fair Housing Alliance filed a federal housing discrimination complaint with HUD against Deutsche Bank (previous complaints were filed against Bank of America and US Bank) for allegedly maintaining and marketing foreclosed homes in majority white neighborhoods far better than majority African-American and Latino neighborhoods.

Campaigns to suspend foreclosures and implement principal reductions: As part of a week of action in February, the Right to the City Alliance delivered over 10,000 signatures to Fannie Mae and Freddie Mac,calling on the new FHFA Director Mel Watt to suspend all evictions and foreclosures until he has a chance to review current FHFA policies related to principal reduction, rental and sale to former owners, and affordable housing creation. The Home Defenders League continues advocating for Local Principal Reduction as a strategy to address the roughly 1 in 5 homeowners who still have negative equity.