Nonprofit sues federal government, Lone Star over mortgage foreclosures

MFY alleges sale of delinquent mortgages hurts black borrowers

A nonprofit representing low-income New Yorkers filed a lawsuit against the federal department of housing and urban development and private fund manager Lone Star Funds, alleging racial bias in their handling of foreclosures.

The group, MFY Legal Services, claims that the authority’s practice of selling delinquent mortgages to private investors disproportionately hurts black homeowners.

Between 2012 and 2014, the Federal Housing Agency sold roughly 1,100 delinquent, federally insured mortgages on New York City homes to private investors. The sales were part of an effort to relieve financial pressure on a federal fund used to insure mortgages.

The lawsuit alleges that borrowers whose mortgages were sold to private investors face a higher risk of foreclosure, in part through loan modifications. According to the lawsuit, 61 percent of the sold mortgages were in predominantly black neighborhoods like Canarsie and parts of Southern Queens, the New York Times reported.

“This lawsuit exposes that the historic racism that has kept our communities segregated, that has blocked African-Americans from sustainable homeownership, and that increases the racial wealth gap in this country is still alive and well,” MFY’s supervising attorney Elizabeth Lynch told the Times.

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