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HUD secretary pressured by both sides over nonperforming loan sales to nonprofits

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HUD secretary pressured by both sides over nonperforming loan sales to nonprofits

Republicansduring a House hearing criticized Department of Housing and Urban Development SecretaryJulian Castro over the sale of severely delinquent loans to nonprofits, while Democratscalled for more of those types of sales.

Overthe course of the three-hour session, Republicans said Castro had failed to fulfillhis fiduciary duty to taxpayers in managing the Federal Housing Administration.At issue was the Distressed Asset Stabilization Program, which sells pools of nonperformingloans insured by the FHA. On June 30, the FHA announced changes to the program thatwould increase sales to nonprofits with the justification that more borrowers wouldbe able to avoid foreclosure.

Republicansalleged the move was in response to complaints from advocacy groups that have launcheda website and organized a petition with more than 100,000 signatures, calling foran end to any sales of nonperforming loans to hedge funds. Castro is often referredto in the media as a rising star in the Democratic Party and a possible vice presidentialcandidate.

The FHAhad previously launched a program that would sell certain loans to nonprofits inan effort to stabilize certain neighborhoods. During the hearing, Castro said someof those loans were likely sold at a lower price than FHA would have received inan open market. The June 30 change allows nonprofits to bid on broader pools ofloans and pay a reserve minimum that might not be the highest bid for those loans.

"Itseems to be common sense that if you're no longer going to allow the highest bidderto buy these properties, by definition there has to be an adverse impact on [theFHA's reserve fund]," said Rep. Jeb Hensarling, R-Texas.

Hensarling,who is chairman of the House Financial Services Committee, and other Republicansrepeatedly pointed to a mandatoryappropriation of $1.7 billion in 2013 to the FHA because its reservefund had fallen dangerously low, calling the move a bailout and an incontrovertiblereason to maximize profits in loan sales.

Democratsdismissed the bailout labeling since the FHA never spent the funds and has generatedprofits in the years since the mandatory appropriation. On several occasions throughoutthe hearing, Democrats apologized to Castro for what they called disrespectful treatmentby their Republican colleagues. They also pointed to the fact that, so far, nonprofitshave accounted for 2% of the FHA's nonperforming loan sales.

"Nowmy Republican friends are crying because their friends on Wall Street don't have100%?" asked Rep. Maxine Waters, D-Calif., while questioning Castro. "Youdon't have to answer that — I said it."

SomeDemocrats went a step further, asking Castro to increase the portion of distressedloans sold to nonprofits. Reps. Carolyn Maloney, D-N.Y., and Michael Capuano, D-Mass.,said the sales to nonprofits have demonstrably better outcomes for borrowers andquestioned why HUD would ever sell to private buyers.

"Yousee why you shouldn't do anything halfway. When you do it halfway, you're goingto get kicked by [Republicans] anyway," Capuano said. "So why don't youjust do what we want you to do? No matter what you do, you can't satisfy them. Twopercent, oh my god, 2%, that's terrible, you're screwing the entire world, and forus, eh 2%, thanks, like it, better than nothing, but we want more."