Private Equity Firms Repeating Banks' Mistakes After Housing Crisis
Millions of people lost their homes when the housing crisis struck in 2008. After the banking system thoroughly failed American families, private equity firms and other investors swooped in to try and save the day – but now, it appears that many of them are simply repeating many of the banks’ mistakes that caused the crisis in the first place.
According to an investigation by the New York Times, these new investors are losing mortgage paperwork, foreclosing quickly on homeowners, and otherwise treating homeowners much the same as they were by unscrupulous banks. For example, Nationstar Mortgage, was found to have repeatedly failed to detect errors in important documents and lost loan files, putting borrowers at a significantly higher risk of loan servicing and foreclosure abuses. In fact, Nationstar makes money whether a homeowner stays in their home or is kicked out in a foreclosure.
Ignoring Poor Neighborhoods
The Times also discovered that many large private equity firms are largely bypassing some of the country’s poorest neighborhoods – evidence of the government’s inadequate response to the housing crisis. Instead of enacting meaningful changes to housing policy, they simply dumped their problems into different hands. These firms have even less oversight than the banks ever did, and yet it is they who are in charge of fixing the mess.
Unlike banks, which are expected to help meet the credit needs of the low-income neighborhoods in the areas they serve as part of the Community Reinvestment Act, private equity firms have no such obligation and therefore have ignored older and less affluent neighborhoods. At the end of the day, these profit-driven firms are answerable to their investors rather than to the people most affected by the housing crisis. Unfortunately, foreclosure is often the most profitable option, and private equity firms largely remain rigid when it comes to offering loan modifications or other forms of relief. As long as these practices are allowed to continue, many homeowners will continue to suffer in the same way they did in 2008 when our banks caused the worst economic crisis since the Great Depression.
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