In a report entitled Do Hedge Funds Make Good Neighbors?, the Conference of Mayors argue that neighbourhood stability and housing market recovery are negatively affected when these loans are sold to speculators.
“An initial examination into four of the largest purchasers of HUD and Federal Housing Finance Agency loans has unearthed an array of disturbing business practices, ranging from those that clearly run counter to the goals of homeownership preservation and neighborhood stability to those that break laws, deceive homeowners, and harm taxpayers more generally,” the study claims.
It would be in originators best interest if non-profits – who are intent on rebuilding neighbourhoods – were given first rights to purchase these loans than investors looking to turn a profit.
Non-profit entities endeavouring to preserve home ownership and housing affordability would help create a larger home buying base for originators to tap into.
The report states that roughly 130,000 of these non-performing loans have fallen into the hands of Wall Street hedge funds and private equity firms.
“It is, of course, no surprise that Wall Street speculators prioritize the needs of the community and tenants below returns to investors,” the report states. “While public officials have sought to reassure taxpayers that these purchasers have financial incentives to try to keep families in their homes, the actual program outcomes suggest otherwise.”
The U.S. Conference of Mayors is urging the U.S Department of Housing and Urban Development, Fannie Mae and Freddie Mac to sell non-performing mortgage loans to non-profit organizations instead of Wall Street investors.