Distressed loan sales scrutinized

Dozens of lawmakers sent a letter Tuesday to housing regulators urging them to disqualify aggressive investors from the sales of distressed mortgages by the Federal Housing Administration, Fannie Mae and Freddie Mac, and asking them to provide more details about loan sales and their outcomes.

Hedge funds and private equity firms have drawn criticism from housing advocates as they swoop in to buy distressed mortgages that remain from the housing crisis nearly a decade ago. Critics say the investors are too quick to push loans into foreclosure rather than negotiate workable modifications that could keep owners in their homes.

The letter, signed by 45 lawmakers, points to the distressed-asset specialty company Lone Star Funds, based in Dallas, and its subsidiary, Caliber Home Loans. Both are under investigation by the New York attorney general over mortgage-servicing practices, particularly loan modifications that revert to original payments.

“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,” said the letter, which was addressed to the Housing and Urban Development secretary, Julián Castro, and the Federal Housing Finance Agency director, Melvin Watt.

The lawmakers asked the agencies to consider loan buyers who commit to foreclosure prevention efforts instead, including direct sales of loans to nonprofit agencies.

— From wire reports