SE Queens asks HUD to curtail mortgage auctions

Councilman I. Daneek Miller (center) stands with elected officials and staff of MFY Legal Services to protest what they said were discriminatory HUD practices.
Courtesy of Council member Miller
By Patrick Donachie

Elected officials in southeast Queens are taking the U.S. Department of Housing and Urban Development to task based on claims revealed in a recent class action lawsuit that accuses the federal department of discriminatory housing policies.

Beginning in 2010, HUD began pooling defaulted mortgages insured by the Federal Housing Association Mortgage Program and auctioning them, according to the lawsuit. The bidders at the auctions are often private equity firms and hedge funds, and elected officials, including state Sen. Leroy Comrie (D-St. Albans), said African-American homeowners were feeling the brunt of the practice.

“This is injustice, pure and simple,” Comrie said. “Even if you disregard the ugly fact that this practice is targeting African-American homeowners, whose mortgages make up two-thirds of those sold at auction even though African-American homeowners account for only 28 percent of HUD notes, we are still looking at a policy that lacks any transparency and gives no regard to working families.”

Southeast Queens homeowners Joseph Washington, St. Clair Blackett and Melissa Trotman, as well as Brooklyn resident Lucille Mason, filed the suit Aug. 15 in federal court in Brooklyn. The suit asserts that homeowners with a federally insured mortgage that they have paid into and depended on lose the benefits of that program if the mortgage is sold at auction.

According to Comrie, HUD found that modifications of mortgages were rare if they were auctioned. Of 113,000 mortgages auctioned off, only 7 percent of those received a modification that might help homeowners stay in their homes. MFY Legal Services assisted the homeowners in filing the suit, and staff attorney Linda Jun said people were being kept in the dark about the state of their mortgages.

“An FHA mortgage comes with benefits that homeowners pay for as part of their monthly premium,” Jun said. “By not informing homeowners that their mortgages are to be sold and their benefits terminated, HUD denies these homeowners their due process rights to object and to intervene to stop the sale. It’s frustrating for us and disastrous for the homeowner.”

The suit was filed against HUD and HUD Secretary Julian Castro, FHA Commissioner Edward Golding, and Caliber Home Loans, which is a subsidiary of the private equity firm Lone Star Funds.

Officials noted that black homeowners in southeast Queens were particularly hard hit by the mortgage note auctions. Between 2012 and 2014, about 25 percent of HUD’s note sales in New York City were in southeast Queens. Among sales in predominantly African-American neighborhoods, 41 percent were located in southeast Queens.

“These hedge funds are doing just fine on their own, while our hardworking New Yorkers have been getting misinformed when they need help to stay in their homes,” Councilman Donovan Richards (D-Arverne) said. “Enough is enough. We have seen too many homes in Southeast Queens remain vacant and abandoned, allowing for blight and criminal activity to burden our communities.”

Reach reporter Patrick Donachie by e-mail at pdonachie@cnglocal.com or by phone at (718) 260–4573.

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