Two prominent lawmakers are urging housing regulators to reject any proposed changes to their non-performing loan (NPL) sales programs that could potentially be harmful to taxpayers.
Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, and Sen. Richard Shelby (R-Alabama), chairman of the Senate Banking Committee, have written a letter to HUD Secretary Julián Castro and FHFA Director Mel Watt to voice concerns over potential changes that would “negatively impact the purpose of those programs and taxpayers alike.” The lawmakers said they believe such changes should be “swiftly and categorically rejected.”
The Agency NPL sales programs have come under fire in recent months for selling the majority of the loans to private investors and equity firms. Critics believe that these buyers are more concerned with turning a profit than producing the best outcomes for the deeply delinquent mortgage loans. Sen. Elizabeth Warren (D-Massachusetts) and Rep. Mike Capuano (D-Massachusetts) led a protest in Washington, D.C., in September, at which time they met with Acting FHA Chief Ed Golding and other federal housing regulators. In early February, the Alliance of Californians for Community Empowerment (ACCE) and the Center for Popular Democracy organized a nationwide protest over the sales of Agency NPLs to investors and speculators.
Protestors believe that the loans should be sold to non-profits and Community Development Financial Institutions (CDFIs) which they believe will focus more on preventing foreclosure, stabilizing neighborhoods, and developing the communities.
“Such calls are particularly inappropriate at a time when our country faces enormous fiscal challenges,” Hensarling and Shelby wrote, citing an annual budget deficit expected to exceed $500 billion for the sixth time in eight years and a total public debt of more than $19.5 trillion. “Advocates of amending your NPL sales programs to establish beneficial classes of bidders—based on subjective special interests and not those of U.S. taxpayers—would violate the solemn responsibility that HUD and FHFA have as public stewards to minimize taxpayer losses on government-backed mortgages by maximizing their recoveries.”
“Such calls are particularly inappropriate at a time when our country faces enormous fiscal challenges.”
Rep. Jeb Hensarling and Sen. Richard Shelby
Hensarling and Shelby said campaigns that criticize the open and competitive NPL sales process are “based on a false notion that doing so is somehow contrary to the goal of ‘neighborhood stabilization.’” The lawmakers contend that maintaining private market participation is essential to that goal because “the best outcome for taxpayers is always the best outcome for communities.”
The lawmakers cited a study released by the Urban Institute in January which stated that “The borrower outcomes are far better under the nonperforming loan sales than they would be without these programs.” They further pointed out a New York Times report from September 2015 which stated that private investors were more “creative and nimble” with banks with terms for delinquent borrowers. They also noted that in the FHFA’s recently released 2015 Scorecard Progress Report, the Agency said that “Sales of (NPLs) can improve outcomes for delinquent borrowers because the purchaser’s financial interest is having borrowers re-perform on their loans and in avoiding foreclosure where possible (and) achieve a mutually beneficial outcome.”
Hensarling and Shelby encouraged both HUD and FHFA to continue to focus on private market participation “so that taxpayers and homeowners have the best chance at a successful future,” adding that “a government guarantee on a mortgage is not and cannot be a license to inflict losses on NPLs on taxpayers.”
Click here to read the full text of Hensarling and Shelby’s letter.