A group of nonprofits that promote affordable housing and community development has sent a letter to top federal officials calling for an investigation into suspected pro-foreclosure campaigns run by hedge funds, mortgage bond traders and insurance companies.
In their letter addressed to Mel Watt, director of the Federal Housing Finance Agency, Jack Lew, secretary of the U.S. Department of the Treasury, and Richard Cordray, director of the Consumer Financial Protection Bureau, the housing groups say they are ‘concerned by recent media reports’ that investors are ‘pushing servicers to foreclose on borrowers rather than offering them loan modifications and principal reductions.’
‘These are many of the same Wall Street investors that contributed to the mortgage crisis and have continued their unscrupulous practices,’ the letter from HomeFree USA, the National Community Reinvestment Coalition and the National Community Stabilization Trust, among others, states. ‘Once again, they are putting their own economic self-interests above our communities and the sustainable growth of our nation's economy.’
The letter specifically mentions national servicer Ocwen Financial Corp., which has seen a spate of regulatory enforcement actions during the past two years that have crippled its operations and decimated its stock. In light of those recent enforcement actions, as well as concerns over the company's performance, a group of investors, including BlackRock Financial Management Inc., Pacific Investment Management Co., Kore Advisors LP, Metropolitan Life Insurance Co. and Neuberger Berman Europe Ltd., represented collectively by law firm Gibbs & Bruns, in January issued a ‘notice of alleged non-performance’ accusing Ocwen of ‘material failures â�¦ as servicer and/or master servicer, to comply with its covenants and agreements under governing pooling and servicing agreements.’
Ocwen then fired back with a letter of rebuttal, alleging that the investor groups were trying to ‘impose changes to standard servicing practices, with the goal of forcing more home foreclosures and fewer loan modifications.’
The investors' ‘pro-foreclosure, anti-modification agenda is driven by their desire to increase their own financial returns on their specific tranche-level holdings in RMBS trusts, at the expense of long-term gains to the trusts as whole, through sustainable modifications,’ Ocwen wrote in its rebuttal.
The housing nonprofits, in their letter this week, argue that Ocwen, in fact, has had a better success rate than other mortgage servicers in keeping borrowers in their homes because of its strong commitment to offering foreclosure alternatives.
The letter cites recent research by Morgan Stanley that found that Ocwen's approach to modifications ‘is more effective in keeping borrowers in their homes.’ The Morgan Stanley report found that ‘not only does Ocwen have a higher success rate on mortgages that went delinquent when it held the servicing rights, but it also seems to succeed at keeping borrowers in their homes when it takes on a delinquent or modified mortgage from another servicer.’
The letter points out that if there is, in fact, a pro-foreclosure campaign by certain investors, it ‘contradicts the foundation of the 2012 National Mortgage Settlement negotiated by the U.S. Justice Department and Attorneys General in 49 states,’ which ‘specifically requires banks and other mortgage market participants to participate in meaningful engagement with community organizations and to develop foreclosure prevention programs, including principal reduction modifications.’
‘We urge you to seriously investigate and prevent these private interests from promoting policies that lead to unnecessary foreclosures,’ the letter states. ‘Access to principal reduction programs, like Ocwen's Shared Appreciation Modification Program, should be applauded; our communities need it. We ask you to encourage mortgage transfers to servicers that " offer principal reduction as a solution to help struggling homeowners instead of other servicers who are more likely to pursue foreclosures.’
Other nonprofits that signed the letter include the National Housing Resource Center; Neighborhood Housing Services of Chicago; Neighborhood Housing Services of Greater Cleveland; Neighborhood Housing Services of New York City; Neighborhood Housing Services of South Florida; New Jersey Citizen Action; and Northwest Side Housing Center Chicago.
To read the full letter, click here.