Letter to the Hon. Julian Castro, Secretary of the Dept. of Housing and Urban Development and the Hon. Melvin L. Watt, Director of the Federal Housing Finance Agency - Protect Homeownership for New Yorkers

Letter

Dear Secretary Castro and Director Watt:

As members of the New York City Congressional Delegation, we are writing to urge your immediate intervention in the bulk sales of distressed properties conducted by the Federal Housing Administration (FHA) and the Government Sponsored Enterprises, Fannie Mae and Freddie Mac ("GSEs"). Recently compiled data from the 2012-2014 sales in New York City revealed disproportionate impact on communities of color, with devastating inter-generational consequences for families and neighborhoods.

As recently as last March, many of us signed onto a letter led by Congressman Michael E. Capuano expressing to your respective agencies our great concerns about the structure and impact these sales have in our communities. Although both of your agencies have recently announced changes to their bulk sales programs to increase favorable outcomes for borrowers and local communities, these steps are clearly inadequate to address a spiraling second foreclosure crisis in predominantly Black and Hispanic populations. Local community-based organizations in our districts have reported that many victims of HUD's Note Sale Program were eligible for FHA's various modification programs and had not exhausted their loss mitigation remedies when their notes were sold unexpectedly and without notice.

We urge you to fundamentally rethink the long-term social and economic consequences of these programs, which place highest priority on short-term financial gains achieved in bundling up hundreds or thousands of properties at a time for sale to the highest bidder. As the data is beginning to reveal, we are convinced that this approach represents a huge missed opportunity to prioritize neighborhood stabilization and long-term economic inclusion.

As indicated in previous correspondence, there are certain fundamental improvements that FHA and the GSEs must make to these programs to better align them with the goals outlined above.

Firstly, we urge your agencies to prioritize the purchasers that commit upfront to foreclosure prevention efforts, including quality loan modifications and property disposition strategies that promote affordable housing. These approaches bring real benefits to communities in which these properties are located, and should be factored into bids offered in lieu of higher priced bids. There are real social and economic costs that cannot be ignored when hundreds of families are displaced and entire communities destabilized. Your agencies cannot continue to discount as immaterial the immense impacts on our local economic systems and our social fabric.

Secondly, we urge you to disqualify the participation of entities that pay lip service to legitimate loan modification requirements while engaging in unfair or abusive practices towards borrowers. These actors must not be allowed to use government programs to profit from the continuing legacy of the financial and foreclosure crisis.

Thirdly, we are concerned that our city government, housing agencies, and community groups were not consulted in any meaningful way as to how these programs should be structured, and what impact bulk sales could have in their jurisdictions. These institutions have built up decades' worth of experience and local partnerships that are essential in improving the impacts of these programs on the ground and addressing the issues we have raised here.

Finally, we request that you institute a policy requiring servicers to provide adequate notice to homeowners before a loan can be sold. Selling homeowners' loans without warning goes against the minimum standards of decency that are expected from a government-backed agency. This practice must end immediately.

As you take steps to improve these programs, we urge you give substantial preference to the preservation of affordable homeownership and rental housing. Maximizing sales to purchasers and non-profit groups with a track record of preserving homeownership, stabilizing neighborhoods, and creating sustainable affordable and mixed-income housing opportunities is key to achieving these goals in the long run.

Sincerely,

Gregory W. Meeks

Member of Congress