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Dallas housing investors are pushing families toward foreclosure, losing their paperwork

By Matthew Goldstein, Rachel Abrams and Ben Protess, The New York Times

When the housing crisis sent the U.S. economy to the brink of disaster in 2008, millions of people lost their homes. The banking system had failed homeowners and their families.

Private equity firms swooped in promising to do better.

But some of these new investors –  including three large firms that do business in Dallas — are repeating the mistakes that banks committed throughout the housing crisis, an investigation by The New York Times has found. They are quickly foreclosing on homeowners. They are losing families’ mortgage paperwork, much as the banks did.

And many of these practices were enabled by the federal government, which sold tens of thousands of discounted mortgages to private equity investors.

Private equity firms, and the mortgage companies they own, face less oversight than the banks. And yet they are the cleanup crew for the worst housing crisis since the Great Depression.

Lone Star Funds’ mortgage operation headquartered in Dallas has aggressively pushed thousands of homeowners toward foreclosure, according to housing data, interviews with borrowers and records obtained through a Freedom of Information request. Lone Star ranks among the country’s biggest buyers of delinquent mortgages from the government and banks.

Coppell-based Nationstar Mortgage, which leapt over big banks to become the fourth-largest collector of mortgage bills, repeatedly lost loan files and failed to detect errors in other documents. These mistakes, according to confidential regulatory records from a 2014 examination, put “borrowers at significant risk of servicing and foreclosure abuses.”

In the rental market, The Times found, other big private equity firms largely bypassed the nation’s poorest neighborhoods as they scooped up and renovated foreclosed homes across the country. Those firms include the nation’s largest private landlord of rental houses, The Blackstone Group LP, which has a subsidiary in Dallas.

These practices point to shortcomings of the government’s response to the housing crisis. Rather than enact sweeping changes to housing policy, the government largely handed the problems to a new set of companies.

These firms, unlike banks, raise money for their deals from pension funds.

Buried in a confidential bond document, in a jumble of legalese, Lone Star explains to investors one way it profits from delinquent loans. Lone Star’s mortgage subsidiary will lower a borrower’s monthly payment if “the net present value of a modification is greater than the net present value of a foreclosure, loan sale or short sale.”

Translation: If foreclosing on a homeowner is the most profitable option, Lone Star is likely to foreclose.

In a statement, Caliber Home Loans, Lone Star’s mortgage servicing subsidiary, said that “modifying a nonperforming loan for a borrower is almost always the most profitable option for a lender, and Caliber is incentivized to pursue that outcome.”

Yet Lone Star and Caliber have foreclosed on more than 14 percent of the 17,000 loans the firm picked up at auction from the Department of Housing and Urban Development in 2014, according to an analysis of loan filings that RealtyTrac performed for The Times. Caliber is now moving toward foreclosing on at least another 3,200.

Caliber and Lone Star have largely opted not to participate in government programs that encourage mortgage modifications. To date, Caliber has received just $3.3 million in payments from the Treasury Department for modifying loans in compliance with the federal Home Affordable Modification Program.

In contrast with Caliber, most banks have participated more fully in the government modification program, as has Nationstar, which has received $158 million in payments.

Inside Nationstar’s headquarters on the outskirts of Dallas, government regulators made an alarming discovery — and then another one, and another.

The regulators, who gathered at Nationstar in 2014 for what should have been a routine examination, found “inaccurate information” in customer loan files, according to confidential documents reviewed by The Times. Nationstar, which became a huge mortgage bill collector in recent years, often failed to detect these errors “until the foreclosure process is underway.” Some of the breakdowns, the documents said, “placed consumers at significant risk of servicing and foreclosure abuses.”

Nationstar, controlled by the Fortress Investment Group, was repeating some of the banking industry’s mistakes.

Authorities are investigating Nationstar based on the 2014 exam, and it could face an enforcement action this year.

Wesley Edens, a founder of Fortress, Nationstar’s private equity backer, maintains that the servicer has performed better than the banks it replaced. Since buying some of the banks’ most troubled assets, Nationstar has overseen a 50 percent decline in delinquent loans, though those improvements coincided with a broader recovery in housing.

A whirl of transactions illustrates how Nationstar can control nearly every stage of the mortgage process, posing potential conflicts of interest as it earns fees along the way. Nationstar collects bills and, when people don’t pay, can foreclose on homes. Nationstar earns fees auctioning those homes through Homesearch, another company it owns. Ads on Homesearch direct bidders to Greenlight Loans, which Nationstar also owns.

Nationstar then collects on new mortgages, bringing the process full circle.

New York-based Blackstone, one of the largest private equity firms, owns 125 homes in Ruskin, Fla., just south of Tampa, that it operates as rentals.

In making such a large investment in housing — $9 billion buying and renovating mainly foreclosed homes over the last four years — Blackstone effectively bet on which communities would emerge from the housing crisis as winners.

It bet correctly. The firm, which now owns about 50,000 homes in 14 markets, recently reported that the fund holding its Invitation Homes rental subsidiary in Dallas has generated a 23 percent annualized return for its investors.

Blackstone largely steered clear of more urban communities with older homes, which are more expensive to maintain.

About 3 percent of Blackstone’s rental homes are leased to lower-income tenants with federal housing subsidies known as Section 8 vouchers. Blackstone has said it welcomes Section 8 voucher holders, if the federal subsidy is enough to cover the rent.

“We are proud to provide quality housing choices for working families,” said Claire Parker, a spokeswoman for Invitation Homes.

From The New York Times

Posted by Julieta Chiquillo, Breaking News reporter

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Article source: http://www.dallasnews.com/business/headlines/20160628-dallas-housing-investors-are-pushing-families-toward-foreclosure-and-losing-their-paperwork.ece

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