As Banks Retreat, Private Equity Rushes to Buy Troubled Home Mortgages
By: Mathew Goldstein, NY times, September 2015
Private equity and hedge fund firms have bought more than 100,000 troubled mortgages at a discount from banks and federal housing agencies, emerging as aggressive liquidators for the remains of the mortgage crisis that erupted nearly a decade ago.
As the housing market nationwide recovers, this is a dark corner from which banks, stung by hefty penalties for bungling mortgage modifications and foreclosures, have retreated. Federal housing officials, for the most part, have welcomed the new financial players as being more nimble and creative than banks with terms for delinquent borrowers.
But the firms are now drawing fire. Housing advocates and lawyers for borrowers contend that the private equity firms and hedge funds are too quick to push homes into foreclosure and are even less helpful than the banks had been in negotiating loan modifications with borrowers. Federal and state lawmakers are taking up the issue, questioning why federal agencies are selling loans at a discount of as much as 30 percent to such firms.
One company has emerged as a lightning rod, criticized by housing advocates and lawyers for borrowers, but admired by investors: Lone Star Funds, a $60 billion private equity firm founded in 1995 by John Grayken. In just a few years, Lone Star’s mortgage servicing firm, Caliber Home Loans, has grown from a bit player to a major force in the market for distressed mortgages.
An examination by The New York Times of housing data, court filings and interviews with borrowers, lawyers and housing advocates revealed a pattern of complaints that Lone Star was quick to begin foreclosure proceedings, whether the firm had bought a delinquent mortgage at a federal auction or directly from a bank.
Take Charles and Pamela Hubbard of Sacramento. They briefly lost their home when Lone Star’s Caliber subsidiary dealt harshly with their request for a loan modification. The couple said they had submitted the application to reduce their monthly mortgage payments four days before a planned foreclosure sale, but the Lone Star subsidiary said the Hubbards had been late in completing the application and pushed ahead with the sale.
Lone Star’s Foreclosures
Lone Star Funds and its affiliated entities, including Caliber Home Loans, have foreclosed on at least 1,500 houses sold by a federal housing agency. The houses were part of an overall pool of 17,000 distressed mortgages the private equity firm purchased in June 2014 at a Department of Housing and Urban Development auction. Most of the completed foreclosures have taken place in the last five months, according to an analysis of home addresses by RealtyTrac…
