Private Equity Firms Repeat Banks’ Past Errors?
During the housing crisis, private equity firms stepped in to allegedly help the millions of people who had lost their homes to foreclosure. They planned to boost the housing market by taking many of these lost properties and turning them into rentals.
However, some of these new investors are reportedly repeating the past mistakes that banks committed throughout the housing crisis, according to an investigation by The New York Times.
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“They are quickly foreclosing on home owners,” The New York Times reports. “They are losing families’ mortgage paperwork, much as the banks did. And many of these practices were enabled by the federal government, which sold tens of thousands of discounted mortgages to private equity investors, while making few demands on how they treated struggling home owners.”
Private equity firms tend to face less oversight than banks.
One of the largest firms, Lone Star Funds, for example, ranks now among the nation’s biggest purchasers of delinquent mortgages from government and banks. The New York Times alleges that its investigation shows that the firm pushed thousands of home owners toward foreclosure. The New York Times alleges that Nationstar Mortgage repeatedly lost loan files and failed to detect errors in documents, which confidential regulatory records from 2014 state put “borrowers at significant risk of servicing and foreclosing abuses.”
Nationstar’s chief executive Jay Bray counters that it outperformed banks on avoiding foreclosure.
The New York Times also says it found that other big private equity firms in the rental market “largely bypassed the nation’s poorest neighborhoods as they scooped up and renovated foreclosed homes across the country.” Instead, they tended to favor buying newer homes in middle-income areas because it was more lucrative for investors.
“There has been a missed opportunity here,” says Dan Immergluck, a professor of city and regional planning at the Georgia Tech College of Design. He has studied the effect of the financial crisis on housing. “They are pushing the market up at the top end and neglecting the bottom end.”
Source: “How Housing’s New Players Spiraled Into Banks’ Old Mistakes,” The New York Times (June 27, 2016)
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