Real Estate & Property Law

HUD's sale of delinquent mortgages to private investors violates fair housing laws, suit says

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A lawsuit filed against the U.S. Department of Housing and Urban Development says that delinquent federally insured mortgages are being sold to private investors who provide fewer protections than the federal government.

Most of the mortgages that are sold to the investors are from predominantly black neighborhoods, and the lack of protections after the sale is leading to a higher foreclosure rate, the suit says. The New York Times has coverage of the suit (PDF), filed Friday in federal court in Brooklyn.

The mortgages are pooled and sold to the highest bidder, which helps shore up the federal insurance fund and allows more mortgages to flow to lower income borrowers, the Times points out. But housing advocates say the sales result in “predatory” loan modifications such as balloon payments and interest only loans that can increase borrowing costs.

The suit, which seeks class action status, alleges a violation of fair housing laws and Congress’ mandate for HUD to expand housing opportunities. “As the foreclosure crisis subsides in other communities, the stability of African-American middle-class neighborhoods is threatened as a result of HUD’s wholesale removal of homeowners from the [Federal Housing Administration] Mortgage Program without due process and in complete contravention of its mandate to preserve homeownership in these neighborhoods,” the suit says.

The suit was filed by MFY Legal Services and Emery Celli Brinckerhoff & Abady, according to a press release.

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