As state and local governments grapple with allocating limited funds to the public health crisis, disaster relief efforts and struggling businesses, private equity funds and real estate investors are poised to gorge themselves on bargains not seen since the last time the economy imploded.
“Once January comes, that’s when the carnage will come,” EasyKnock Inc. CEO Jarred Kessler told the Wall Street journal last September. Kessler’s company has raised hundreds of millions of dollars with the intention of purchasing homes and renting them back to their previous owners once eviction moratoria, some of which have been extended since he was quoted, expire.
While lower interest rates have created new homeownership opportunities for some, many communities that had yet to recover from the previous financial crisis continue to be disproportionately affected by the pandemic.
Oregon’s statewide foreclosure moratorium expired on New Year’s Eve 2020, and advocates for homeowners say they’re concerned the state could experience a wave of foreclosures without renewed protections and adequate aid. President Joe Biden has extended the federal CARES Act foreclosure moratorium, which covers the approximately 70% of home loans that are federally backed, until the end of March.
Hope Del Carlo, an attorney who specializes in foreclosure defense and consumer protection, said one consequence of previous foreclosure moratoriums is that this year, virtually all mortgage companies will be able to apply for an exemption from the state’s Foreclosure Avoidance Program, which has a track record of helping people stay in their homes after suffering financial hardship.
“I worry that there’s this looming invisible problem that is going to hurt all the same people that we’re all trying to stop hurting,” Del Carlo said.
At the end of 2020, approximately 111,000 Oregonians said they were behind on their mortgage payments, according to the U.S. Census Bureau. About 82,000 said they lacked confidence they could make January’s mortgage payment.
Prominent landlord attorney John DiLorenzo said mom-and-pop landlords who can no longer wait for a bailout are turning to their best remaining source of income: a sizzling residential real estate market.
“At some point, you say: You know what? Screw it. I’m going to just sell this as a single-family house,” DiLorenzo said. “You make a little money, but at least you bail out your investment.”
DiLorenzo represents landlords who are suing Gov. Kate Brown, the state of Oregon, Multnomah County and the city of Portland over the constitutionality of eviction moratoriums that have been extended until July 1.
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Smaller landlords — those with fewer than five units — make up over half of the cheapest unsubsidized rentals available, according to Harvard University’s Joint Center For Housing Studies.
“We’re in the very early stage, really, of being able to prevent that problem of rental units going offline or being acquired by investors whose only motive is to maximize profits,” Urban Institute senior policy program manager Maya Brennan told City Monitor last June.
But even owners of homes with federally backed mortgages who would prefer to stick around aren’t always able to take advantage of relief that is available.
Any borrower with a home loan owned by Fannie Mae, Freddie Mac, the Federal Housing Administration, the U.S. Department of Agriculture or the Department of Veterans Affairs is eligible to pause mortgage payments for up to a year, known as forbearance.
During two separate investigations last year, the inspector general for the U.S. Department of Housing and Urban Development found that “some servicer websites continue to provide information that could mislead or confuse borrowers or provide little or no information to borrowers related to their forbearance options under the CARES Act.”
Borrowers across the country have also been receiving misleading or confusing information that contradicts federal guidance directing mortgage servicers to provide “alternative ways” of payment “in a manner that is affordable” following the end of forbearance periods.
What options are ultimately available depends on which federal agency owns the loan, among other factors.
“If all of this sounds confusing and complicated, it is,” said Kelly Harpster, the lead attorney for the Oregon Department of Justice’s Consumer Protection Section, in an email.
While unprecedented moves by the nation’s top bankers have unleashed a torrent of cheap credit and taxpayer funds to bail out corporations and investors, reports increasingly document waning federal oversight over the multitrillion-dollar consumer financial services sector and exploitative practices by predatory lenders, debt collectors and mortgage companies.
Successive interventions and aid programs from lawmakers in Salem and Washington, D.C., have averted potential waves of evictions and foreclosures so far.
Despite those efforts, hundreds of thousands of Americans have lost their homes since the COVID-19 pandemic began early last year.
A botched vaccine rollout and the emergence of a more contagious coronavirus variant have the potential to extend shutdowns and their corresponding financial hardships.
Included among $1.9 trillion in proposed relief measures in the Biden administration’s COVID-19 response bill are extensions of federal eviction and foreclosure moratoriums, along with survival checks, boosted unemployment insurance and aid for state and local governments.
Controversial components of that legislation, including a $15 minimum wage, make the passage of Biden’s proposal far from guaranteed.
That leaves state and local leaders constrained by statutory requirements to maintain a balanced budget with limited options to address hundreds of millions of dollars in unpaid rent and mortgage payments.
State Rep. Paul Holvey (D-Eugene), who championed previous efforts to extend a residential foreclosure moratorium, did not respond to questions about potential plans to introduce foreclosure moratorium legislation.
‘They do everything because of money’
Because most home loans serve as the lubricant for the nation’s largest financial services market, relief for vulnerable homeowners and smaller landlords often means a blow to the bottom lines of banks and other entities that profit from the commodification and financialization of housing.
The collective financial hardships of homeowners represent a massive wrench thrown into the $11 trillion residential mortgage market, which divvies up borrower payments to a wide array of investors and intermediaries.
Unlike the last crisis, most homes have become more valuable at the same time people living in them confront evaporating incomes and fresh piles of bills.
Terry Scannell, a Portland-based attorney with experience litigating against large financial institutions in foreclosure cases, said everyone coming into his office with a foreclosure problem has had a home worth more than their loan.
“Whenever you look at things these institutions do that don’t make any sense to normal human beings, there’s only really one answer: money,” Scannell said. “They do everything because of money.
“You have these people sitting on highly appreciated property in general, and now the banks and loan servicers can say, ‘Oh, you’re in default because you didn’t pay us because of COVID.’”
Loan servicers are the companies responsible for payment collection, customer service and disbursement of remaining funds to the other myriad actors with a financial interest in a borrower’s loan.
The companies played a key role in endemic foreclosure fraud that threatened the continued existence of the nation’s largest banks following the collapse of the housing industry in 2008.
Many of the financial incentives encouraging servicers to steer borrowers toward foreclosure instead of a loan modification during the Great Recession still exist, said Diane Thompson, a consumer advocate and former top official at the Consumer Financial Protection Bureau.
“Servicers, unlike investors or homeowners, do not generally lose money on a foreclosure,” Thompson wrote in a report published over a decade ago. “Servicers may even make money on a foreclosure.”
Until 2017, Oregon didn’t regulate the activities of the mortgage servicing industry. Now all companies are licensed with the Department of Business and Consumer Services, which supervises servicers at the state level.
The Oregon Department of Justice oversees the state’s Foreclosure Avoidance Program, which brings homeowners and their lenders together for mediation aiming to avoid foreclosure.
“We have found (the program) to be incredibly impactful and incredibly successful across the board,” said Karen Saxe, director of financial wellbeing at DevNW, an affordable-housing and counseling agency.
Homeowners are not required to participate in mediation, but about a quarter of eligible homeowners do, Harpster said. Of those, roughly half come to an agreement, which usually allows homeowners to keep their homes.
Any mortgage company that files fewer than 175 foreclosure actions in a given year can apply for an exemption to the program’s requirements for mediation the following year.
Because the state’s moratorium last year ran throughout much of 2020, virtually all companies are eligible to file for an exemption this year.
“It worries me that a lot of lenders may just be able to file (exemptions) and skip over that process unless the Legislature or DOJ — whoever has the power to change that number — does that,” Del Carlo said.
Consumer protections in name only, under Trump
The collapse of the housing bubble in 2008 destroyed $11 trillion in wealth and sent millions of homes into foreclosure. Increasing levels of homelessness, hunger, disease and suicide followed.
In response, Congress created the Consumer Financial Industry Protection Bureau, a new federal agency responsible for policing predatory and illegal activity in major consumer financial sectors.
At its peak around 2014 and 2015, this bureau’s enforcement actions returned $10 million in restitution per week to consumers on average, according to a 2019 report published by Christopher Peterson, a former CFPB official and a University of Utah law professor.
During the Trump administration, Peterson said, “enforcement activity at the CFPB has declined to levels that are either nonexistent or significantly below that of the prior administration, even in the areas where consumer complaint activity is the highest.”
As the pandemic spread last April, former CFPB officials Thompson, Peterson and former Director Richard Cordray released “an action plan of more than a dozen practical steps that the CFPB can and must take immediately to prevent widespread consumer harm.”
After tracking regulatory actions from the agency since last March, Thompson’s Consumer Rights Regulatory Engagement and Advocacy Project released a report concluding the CFPB’s response to the pandemic prioritized relaxing regulatory requirements for the financial industry at the expense of consumer protection.
“Mounting evidence suggests that communities of color, particularly Black, Latino, Native American, and immigrant communities bear the brunt of the health, mortality, and economic impacts of COVID,” Thompson wrote in September.
Outgoing CFPB Director Kathy Kraninger commemorated her second year as bureau director in December, stating: “In these challenging times, I’m proud of the work that the Bureau has undertaken to protect consumers during the pandemic.”
As expected, Kraninger resigned Wednesday when Biden took office. She said in a tweet that the move was at the request of his administration.
Her replacement, Rohit Chopra, previously served as assistant director at the CFPB before becoming a Federal Trade Commissioner in 2018. Chopra now awaits Senate confirmation.
Chopra is likely to roll back agency guidance issued last spring, which informed mortgage servicers that the bureau would not enforce violations of most of its foreclosure prevention rules “until further notice.”
“If we receive a complaint, our normal process is to investigate any potential violations with the goal of achieving compliance by the servicer and relief for the consumer,” said Brad Hilliard, a Department of Consumer and Business Services spokesperson. “After working through that process, we determine whether enforcement action is warranted.”
“Although we do not supervise servicers, we do investigate and prosecute violations of the Unlawful Trade Practices Act, including our mortgage servicing rule,” Harpster said.
Lenders more lawless than ever
Even after record-breaking settlements, white-collar crime at America’s largest financial institutions is on the rise.
Better Markets, a financial watchdog group founded in the wake of the 2008 financial crisis, released a report on Jan. 13 chronicling just under 400 major legal actions against the six largest banks on Wall Street since 1998.
“Proving that monetary penalties, no matter how large, simply are not enough to punish or deter lawbreaking, the country’s biggest banks have actually increased their lawlessness over the last decade,” wrote Better Markets President Dennis Kelleher.
“That’s because the banks have trillions of dollars in assets and hundreds of billions of dollars in profits, and they pay those fines years afterwards with shareholder money.”
In December, Oregon Attorney General Ellen Rosenblum announced an $86 million settlement with one of the nation’s largest mortgage servicers, Nationstar. Now known as Mr. Cooper, the firm represents a growing industry of nonbank mortgage companies that face less regulatory scrutiny than traditional banks.
“State and federal regulators and policymakers have paid greater attention to nonbank servicers, which were largely unregulated in the past and now service around 40% of residential mortgages,” Harpster said.
“What we don’t know yet is whether servicers will successfully transition borrowers from short-term forbearance to permanent modifications without the kinds of problems we have seen in the past.”
Those problems included mortgage companies piling on illegal fees, pushing customers into foreclosure, and lying to borrowers seeking loan modifications.
In 2013, approximately 16,000 Oregonians whose homes were effectively stolen during the 2008 financial crisis received a $1,500 check as compensation.
“These payments are part of our efforts to hold the banks accountable through the National Mortgage Settlement,” Rosenblum said at the time. “In addition to compensating borrowers for the servicing abuse that happened in the past, we’re trying to stop these practices through the settlement’s tough new mortgage servicing standards.”
Almost eight years later, Portland attorney Scannell, who’s litigated on behalf of homeowners in foreclosure cases, calls the situation a disaster.
“We need disaster relief for human beings,” he said. “But it’s kind of all repeating again, where the vast benefit of this is going to inure to the banks, to the loan servicers, and then they’re going to come right back and harvest homes and make even more money.”
If you're facing foreclosure
We asked a couple of experts for advice:
Michael Fuller, Oregon consumer protection and bankruptcy attorney:
“I would encourage people to start with Legal Aid. They’re a great resource, but they’re obviously underfunded and they get more calls than they can handle. Also look for bankruptcy attorneys that offer free consultations that are very experienced in the community. Make sure you know what your options are. And I would say be hesitant to pay a lawyer that wants to charge you money just to tell you what they know. Because there are lawyers out there that will tell you what they know at no cost, and if you need their services they write you up a quote.”
Diane Thompson, former Consumer Financial Industry Protection Bureau official:
“For homeowners: Don’t wait. Start reaching out to your servicers now. Ask for a loss mitigation application. Fill it out. Stay on top of it. Consult with a HUD-certified housing counselor. Keep records.”
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