Dallas equity firm sued by homeowners

by Michael Mata25 Aug 2016
Earlier this month, four black homeowners in the state of New York filed a federal suit against the Dallas-based equity firm Lone Star Funds. The federal suit also targets the United States Department of Housing and Urban Development (HUD). The plaintiffs allege that Lone Star Funds pushed them towards foreclosure by misleading them about their mortgages.

One of the plaintiffs, 53-year-old Joseph Washington of Queens, told a federal court that Lone Star’s mortgage servicer, Irving-based Caliber Home Loans, would call him multiple times each day, threatening foreclosure and pressuring him to accept an unfavorable change to his loan.

Caliber Home Loans has denounced the lawsuit, saying it was “without merit”.    

“Caliber is committed to treating all borrowers fairly, to helping families stay in their homes where it is feasible, and has complied with all [Federal Housing Administration-mandated] servicing requirements,” stated Marion McDougall, Caliber Home Loans’ head of servicing.

Since the financial crisis of 2007-08, the HUD has been selling insured delinquent mortgages to private investors, typically private equity funds and hedge funds, which then collect monthly payments. The federal suit alleges that private investors provide fewer protections to homeowners who fall behind on their mortgage payments, leading to higher rates of foreclosure.   

The federal suit also alleges that the sale of delinquent mortgages to private investors disproportionately harms black families because their share of government-insured mortgages in New York City is higher than that of white families.    

The four homeowners—who want to turn their complaint into a class-action suit—allege that Caliber Home Loans:
  1. Falsely told homeowners when it acquired their loans that the transfer wouldn’t change the terms of their mortgages.
  2. Lied to homeowners by stating that it didn’t offer a type of loan modification that would make payments affordable long term.
  3. Violated federal law by refusing to review homeowners for loan modifications.
Lone Star Funds is one of the top buyers of distressed mortgages sold by the HUD, and has purchased over a fifth of the at-risk loans auctioned by the HUD in national or regional bundles over a span of four years.
 

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