The proposed reforms were outlined in a March 1 letter sent to Mel Watt, director of the Federal Housing Finance Agency, and Julian Castro, secretary of the Department of Housing and Urban Development.
The letter criticizes the agencies’ programs for selling off distressed mortgages, such as the FHA
’s Distressed Asset Stabilization Program. FHA began selling mortgages in bulk following the financial crisis as a way to get troubled assets off of its books. However, a 2015 investigation by the Center for Public Integrity found that only a small percentage of the 98,000 mortgages sold through the program avoided foreclosure. Critics of the agencies programs argue that many mortgages are being sold to wealthy investors who aren’t giving borrowers a chance to avoid foreclosure – which is supposed to be the point of the programs, according to the Center for Public Integrity.
The Congress members’ letter acknowledged that previous reforms to the agencies’ mortgage sales programs were “a step in the right direction.”
“However, sale after sale seems to indicate quite clearly that the fundamental approach of these programs, to bundle up hundreds or thousands of properties at a time for sale to the highest available bidder, and without sufficient attention to potential outcomes for homeowners, communities, and the affordable housing missions of your agencies, has not changed.”
The letter urges the agencies to make four “key improvements” that would help preserve home ownership while also allowing the FHA, Fannie and Freddie to continue selling mortgages. First, the letter urges the agencies to disqualify “bad actors” from participating in auctions.
“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,” the letter stated.
The letter also urged the agencies to increase the transparency of the sales and require buyers to “commit upfront to foreclosure prevention efforts.”
HUD has stated that it will respond directly to the signatories of the letter.
Forty-five members of Congress are calling for reforms to the bulk mortgage sales programs of the Federal Housing Administration, Fannie Mae and Freddie Mac.