Racial Bias or Wall Street Greed: The New Role of Private Investment Firms in Federal Housing

A nonprofit law firm in New York is suing the federal Department of Housing and Urban Development (HUD) and a private equity firm (that reports capital commitments of $65 billion). MFY Legal Services filed suit in Brooklyn, claiming the handling of foreclosures by HUD and Lone Star Funds in neighborhoods that include Canarsie and parts of Southern Queens, were racially biased.

HUD, a federal program created in the 1930s to provide housing to lower-income families and first-time homeowners, experienced a major increase in delinquent mortgages and foreclosures following the 2008 financial crisis and recession. A spiraling deficit within the agency caught the attention of Congress and by 2010, what is now known as the Distressed Asset Stabilization Program (DASP) was born. The new program not only opened a funding stream for HUD to become solvent, but it created a possible alternative to foreclosure for HUD borrowers. The loans in DASP, according to HUD spokesman Brian Sullivan, “are all headed to foreclosure—100 percent of them—because they’ve exhausted their loss-mitigation options.” The new program allows them one more possible alternative through a new lender who is required to try to work with the borrower on loan modifications in order to keep them in their homes.

HUD is allowed to sell these mortgages in bulk at discounted rates to investors, and have done so through DASP for as little as 41 cents on the dollar. According to the Atlantic, “Wall Street is once again buying [thousands of] mortgages, and…instead of dealing with shady subprime lenders, they are buying…shaky loans from the government—at a significant discount.”

Rest here…