Fed Auctions of Troubled Mortgage Loans Hurts Homeowners, Yet Again

In 2013, the U.S. Department of Housing and Urban Development (HUD), the federal agency historically charged with increasing homeownership among working families, ramped up its sale at auctions of distressed mortgage loans for the purchase of single-family homes. A year later, Fannie Mae and Freddie Mac, the two giant government-sponsored entities responsible for maintaining the liquidity of the nation’s housing markets, followed with their own auctions.

Since HUD first started auctioning distressed loans in 2010, the three federal organizations charged with safeguarding the health of the housing market have sold approximately 148,000 soured loans worth nearly $27.4 billion. [1] Those loans have sold at a 41 percent discount from value. [2]

That steep a discount raises a serious question as to why the three agencies would resort to a method designed to generate profits for investment banks and hedge funds, and players in the real estate market in subsequent sales. This is especially the case because one outgrowth of the government’s bailout of the nation’s economy in 2008 was the federal government’s Home Affordable Mortgage Program (HAMP), which requires most mortgage holders to work with strapped homeowners to restructure their loans to lower payment levels within their reach.

U.S. Representative Yvette Clarke, whose Ninth Congressional District in central Brooklyn has been particularly hard hit by the foreclosure crisis, said she is pushing the Federal Housing Finance Agency (FHFA), which oversees both Fannie and Freddie, “to consider principal reductions in amounts comparable to the discounts being offered to private investors to achieve neighborhood stability in districts like my own.” To that end, she is seeking a meeting between FHFA Director Melvin L. Watt and representatives from other districts, which have been hit hard by the foreclosure crisis.

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HUD Sells Troubled Mortgages to Wall Street at 41% Discount

This presents a brief explanation of why I spent a good part of the last month figuring out how to derive the “discount” realized by the winning bidders of auctions sponsored by the U.S. Department of Housing and Urban Development (HUD). I have pegged the discount at 41 percent through my examination of eight auctions held since October 2013, at which HUD sold for $7.6 billion nearly 74,000 troubled mortgages, worth $12.9 billion.

I will post a more comprehensive story later in the week.


While attending a community meeting convened in February by Brooklyn Congresswoman Yvette Clarke, I first heard housing advocates criticize the three major federal entities, responsible for maintaining the stability of the nation’s housing market, for selling distressed mortgage loans at substantial discounts to hedge funds and other private equity groups.

In an article I wrote about the meeting in February, I reported that housing advocates and public officials attending the meeting raised piercing questions about why government-connected agencies would resort to an auction process that enabled financial institutions to profit from the spread between what winning bidders paid to buy the troubled loans and their estimated value.

Why, they asked, had not those agencies insisted that, in the first instance, the institutions holding the troubled loans work with homeowners to restructure their loans so the monthly payments would be more within reach? After all, most major lenders were under a federal mandate to engage in such a process as a part of the Troubled Asset Relief Program (TARP), enacted in 2008 by Congress, to save the nation’s economy. Additionally, state and local governments in 20 jurisdictions have enacted laws requiring that lenders engage in such efforts BEFORE foreclosing upon loans.

I felt that I could not report upon those claims without first ascertaining the size of the discount. The level of the discount would allow for assessment of what the buyers’ profits would look like. Conversely, it would show how much room was available for working out a loan modification to allow borrowers to stay in their homes.

The U.S. Department of Housing and Urban Development (HUD) was the first governmental agency to begin auctioning troubled mortgage loans in 2010. The other two entities, Fannie Mae and Freddie Mac, which are officially designated as “government sponsored enterprises,” followed suit in the summer of 2014.

Fannie and Freddie publish quite a bit of data about the results of their auctions. But their data lacks a key ingredient without which the amount of the discount cannot be derived: the amount winning bidders have paid for the loans they have acquired at the auctions.

Fortunately, HUD’s reports of its auction do disclose the amounts paid by winning bidders or, at least, sufficient information from which that information can be gleaned.

In order to derive the 41 percent figure, I first had to determine what percent of value winners paid for the loans they had acquired at the auctions. That percentage (59 percent) was derived by dividing the total winning bids ($7.6 billion) by the total value of the loans ($12.9 billion) determined by the method HUD used in its most recent survey of the results of its auctions. Under that method, value is ascertained by determining the amount of unpaid principal remaining on the loans that were auctioned, or “Unpaid Principal Balance” (UPB) in real estate parlance.

The discount figure of 41 percent was then yielded by subtracting the percentage of value paid by winners (59 percent) from full value (100 percent). Further details concerning my methodology are contained in the footnotes to the chart.

Discounts at HUD Auctions from
June 11, 2013 to May 18, 2016*

Sale Name and Date Number of Loans Sold Value Based on Amount Still Due on Mortgages (UPB) Fn.1 Amount Winning Bidders Paid Percentage of Value Paid by Winning Bidders Discount Off Full Value
2014-1 National; Oct. 30 and Dec. 17, 2013 17,149 $3.0 Billion $1.6 Billion 53% 47%
2014-1 Neighborhood Stabilization Outcome (NSO); Dec. 19, 2013 Fn. 2 3,188 $657.3 Million $403.8 Million 61% 39%
2014-2 National; June 11 and Sept. 30, 2013 27,580 $4.5 Billion $2.9 Billion 64% 36%
2014-2 NSO; June 25 and Nov. 19, 2014 6,847 $1.2 Billion $703.3 Million 59% 41%
2015-1 National; July 16, 2015 3,752 $582.5 Million $339 Million 58% 42%
2015-1 NSO; July 16, 2015 1,501 $343.7 Million $187.8 Million 55% 45%
2016-1 National and NSO combined; Nov. 18, 2015 Fn.3 7,644 $1.2 Billion $616.6 Million 51% 49%
Aged Delinquent Portfolio Sale; May 18, 2016 Fn.4 7,892 $1.4 Billion $776.5 Million 55% 45%
Total Fn.5 73,811 $12.9 Billion $7.6 Billion 59% 41%
*Source: Material in this chart for auctions held between Oct. 30, 2013 and July 16, 2015 came from HUD’s Report to the Commissioner dated Jan. 22, 2016 at pp. 39, 41, 44, 46 and 49. Data for the auction held on Nov. 18, 2016 is found in HUD’s “Sales Report Summary” for that auction pp.1-3 to 1-5. The data for the sale dated May 18, 2015 is contained in the “Sales Results Summary.” Link pp.1-3 and 1-4 for the auction on that date.
Fn.1: In real estatate jargon, the method is called “Unpaid Principal Balance” (UPO).
Fn.2: Sale of pools of mortgages that are subject to more stringent rules requiring winning bidders to meet goals to improve neighborhoods.
Fn.3: The number and value of the sales at the Nov. 18, 2015 auction have been reduced because one pool (# 301), though listed, was not sold. Sales Result Summary, Nov. 18, 2015, p 1-3.
Fn.4: The number and value of the sales at the May 18, 2016 sale have been reduced because one pool (#408) was listed but not sold. Sales Results Summary, Jan. 18, 2016, p. 1-4.
Fn.5: The figure of 59% for the ratio of winning bids to value was obtained by dividing $7.6 Billion by $12.9 Billion. The amount of the discount was derived by subtracting 59% from 100%.

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Judge: 2 Lawyers Vulnerable to Contempt for Referring to Material in Unsealed Documents

U.S. Eastern District Judge Brian M. Cogan yesterday released the bulk of the records being sought by the Associated Press in its quest for documents relating to Donald Trump’s business dealings with a real estate developer, who had mob connections and a hidden criminal record in his past.

But at a court hearing in Brooklyn yesterday, Cogan offered no quarter to the two lawyers before him, whom he has referred for a criminal contempt investigation. He repeatedly, and sharply, warned lawyers Fred Oberlander and Richard Lerner that they could face more contempt charges if they publicly reveal information about materials sealed by a host of gag orders issued in a criminal case involving the the real estate developer since 1998. That could be the case, he stressed, even if the previously sealed document has been unsealed.

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Cogan Ramps Up Pressure on Northern District

Eastern District Judge Brian M. Cogan has faulted the U.S. Attorney’s Office in Syracuse for offering pabulum rather than specific facts to defend the continued sealing of court documents being sought by the Associated Press.

Cogan, who sits in the Brooklyn-based Eastern District of New York, last week rejected the Northern District office’s letter submission and ordered it to submit a brief in support of its position that the documents should remain out of public view. Read Cogan’s order.

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With Trump in Picture, Judge’s Push for Contempt against 2 Lawyers May Falter

Eastern District Judge Brian M. Cogan issued a highly unusual order last week, attempting to jawbone the U.S. Justice Department to bring criminal contempt charges against two New York lawyers, whom I wrote about extensively in 2012 and 2013, Frederick M. Oberlander and Richard E. Lerner. View WiseLawNY stories dated Aug. 8, 2012 and Aug. 22, 2012.

The springboard that Cogan used to demand an end to the investigation against the two lawyers was a motion brought by the Associated Press to open a sealed file, containing information about a mob-connected criminal cooperator, Felix Sater, who has had business dealings with Republican presidential candidate Donald Trump. Read Cogan’s order.

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Public Advocate James, Fired Up, To Seek Meeting with Brooklyn Administrative Judge

Corrected and Revised*

New York City Public Advocate Letitia James cast a harsh spotlight on Justice Lawrence S. Knipel, the administrative judge in charge of civil cases in Brooklyn Supreme Court, at a meeting convened Friday, under the leadership of Brooklyn Congresswoman Yvette Clarke, to examine the impact of foreclosures upon communities of color.

During the course of the meeting at Brooklyn Law School, James rose on several occasions to express dismay over the way foreclosure cases are being handled in Brooklyn and angrily  vowed to seek a meeting with him.

About 70 public officials, homeowners’ lawyers and their clients attended the session. The session was presented in conjunction with the New York State Foreclosure Defense Bar.

The message from about a dozen lawyers and their clients, who were designated as presenters, was clear: the foreclosure crisis of the Great Recession is not over. To the contrary, the crisis is greater than ever because government-related entities, such as Fannie Mae, have been selling off huge amounts of troubled mortgages at bargain prices to investors, who, in Brooklyn, are pressing hard for foreclosures so they can take advantage of rising prices as gentrification in some of its poorer neighborhoods speeds ahead.

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Thanks to my readers

Yesterday’s story about judge’s resistance to NY Chief Judge’s Lippman’s bail reform plan was more than twice as high as previously recorded on any single day— more than 1100 page views.

I am glad you found it interesting enough to share with your friends and hope that I can continue to find topics of such interest to write about.

Thank you,

Dan Wise

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Anger Over Lippman’s Bail Reform Plan Sweeps Through NYC Criminal Judges

Judges, both present and former, in Manhattan, Queens and the Bronx report in interviews that a wide swath of their colleagues handling criminal cases are adamantly opposed to Chief Judge Jonathan Lippman’s bail reform plan.

The judges say there is a widespread sentiment within the criminal bench that the Lippman plan is not reflective of the realities they face in setting bail; will sow discord among judges handling criminal cases; was rolled out in a manner that was demeaning to judges and the quality of work they do; and is at odds with statutory requirements and ethical restraints designed to protect the judiciary from outside influences.  Continue reading


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Misguided Conservative Attack with Lynch Nomination a Cliffhanger

Conservative critics of Loretta Lynch have raised a bogus argument in an effort to derail her nomination for U.S. Attorney General as her nomination enters a critical and perilous stage.

In the past week Senate vote-counters are predicting that, even if the Senate votes on her confirmation, the result would be a 50-50 tie with Vice President Joe Biden casting the deciding vote. That leaves Lynch, who has been the U.S. Attorney based in Brooklyn since 2010 zero-room for defectors. Four of the senators currently in her column are Republicans, one of whom is Hatch (R-Utah), who sits on the Judiciary Committee.

On Tuesday Senator Dick Durbin (D-Ill.), who as minority whip is the Democrats chief vote counter, told the Huffington Post link that he is “worried” about the outcome of a vote on Lynch’s confirmation. But yesterday, Senator Lindsey Graham (R-S.C.) told the Huffington Post that he thinks “a couple” of Republican votes will be found to put Lynch over the top.

In the past two weeks, two prominent publications with a conservative editorial bent have launched a factually inaccurate attack claiming that Lynch mislead Hatch in responding to a written question he posed to her after her two-day hearing before the Judiciary Committee wrapped up on Jan. 29.

On Thursday, March 11, the New York Observer ran an article written by a former federal prosecutor under the headline “Breaking: Loretta Lynch Caught in Deceptive Disclaimer.” The Observer story was followed a week ago Tuesday, March 17, by an editorial in the Washington Times, which likewise accused Lynch of misleading Hatch. Continue reading

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Did Bank Complaints Result in Transfer of Foreclosure Referee?

I have come into possession of a copy of an internal e-mail from a court attorney to a top official at the Office of Court Administration that paints an unsettling picture of bank influence in the handling of foreclosure cases in Brooklyn. The e-mail was from Deborah Goldstein, a court attorney at the Supreme Court in Brooklyn, who for four years had been supervising conferences required by state law between banks and homeowners facing foreclosure.

In her-email, Goldstein asked Judge Lawrence K. Marks, the number two official in charge of court administration throughout New York, to stop an imminent plan to move her to a pool of lawyers whose job is to help judges draft opinions. In her e-mail, Goldstein advised Marks that Lawrence S. Knipel, the administrative judge in charge of civil cases at the Brooklyn court, was moving her out of her mini-courtroom after having received complaints “verbally made at a private meeting” with lawyers who represent banks at the settlement conferences, without providing her “any [of those] complaint(s) in writing or an opportunity to respond.”

Goldstein’s appeal was unavailing, and she was re-assigned to desk duties five days later on April 22, 2013.

I obtained a copy of Goldstein’s email to Marks from a confidential source, not Goldstein. When I advised Goldstein that I was in possession of the email, she asked me not to write about it and declined to be interviewed for this story.

Goldstein’s account of her removal finds support in a number of circumstances that surrounded her reassignment. Some of the most telling were: During his first four months as administrative judge, Knipel unilaterally revised the rules for handling the settlement conferences to the dismay of many judges who were actually in charge of the cases. The revised rules seemed aimed at Goldstein and designed to curb some of her practices that drew criticism from the bank bar. And homeowners’ lawyers, and even some judges, were unaware of the rule changes amid signs that bank lawyers knew about them in advance.

Additionally, during the last two years, 14 judges have agreed with Goldstein’s recommendations that the banks failed to negotiate in good faith—sometimes in highly critical opinions. Also, Goldstein’s findings served as the predicate for two important decisions issued by the appeals court in Brooklyn last year. Continue reading

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