Vulture Capital Hits Home: How HUD Is Helping Wall Street and Hurting Our Communities
“We’re seeing an unprecedented rise of the corporate landlord, and HUD’s Distressed Asset Stabilization Program is just facilitating the process,” said Rachel Laforest, executive director of the Right to the City Alliance. “HUD should employ a credit system that favors nonprofit bidders whose sole mission is community investment and implement stronger requirements for bid winners to preserve homeownership and give struggling families affordable housing options.”
The financial industry has found yet another way to profit from the distress of homeowners. Investors are trading distressed residential assets – mortgages and vacant properties in severe
arrears — and are building a spectrum of business plans many of which undermine neighborhood and economic stability. There is currently a hot market in severely delinquent mortgages. Banks and government entities are selling them off and investors – particularly hedge funds — are buying them.
In 2012, the U.S. Department of Housing and Urban Development’s Federal Housing Administration (FHA) significantly increased its sale of pools of distressed FHA-insured mortgages through a program called the Distressed Asset Stabilization Program (DASP). The program has a dual purpose: to return and protect FHA’s Mutual Mortgage Insurance (MMI) capital reserves fund to a positive position and “to encourage public/private partnership to stabilize neighborhoods and home values in critical markets.”
This report focuses on the FHA’s Distressed Asset Stabilization Program (DASP). The DASP has the potential to recuperate needed funds for its mortgage insurance fund, preserve homeownership, and create affordable rental housing. Instead, the FHA has designed DASP in such a way as to severely limit its effectiveness in helping hard-hit neighborhoods recover from the housing crisis. Between the start of the DASP program in 2012 and the middle of 2014, the FHA has auctioned 98,100 mortgages, for bids amounting to $8.8 billion. 97% of the auctioned loans have been won by for-profit entities, largely private equity firms. A fair amount is known about the Wall Street entities trading in “distressed assets.” This report examines their business models and how their business interests are often in direct conflict with the interests of homeowners, renters and their communities.
Copy of the report below…