Lone Star Funds facing suit over mortgage practices

Lone Star purchased the mortgages at issue from the Department of Housing and Urban Development.

Lone Star Funds has been challenged over its lending practices by a New York-based nonprofit, which filed a class-action lawsuit against the Dallas-based investment shop and the US Department of Housing and Urban Development.

MFY Legal Services, on behalf of African-American homeowners in New York, submitted a complaint on 12 August in the US District Court for the Eastern District of New York alleging Lone Star failed to allow borrowers to use HUD's Home Affordable Modification Program, which helps homeowners to avoid foreclosure. The suit, in all, levels eight separate charges against HUD and Lone Star, including a violation of the Fair Housing Act.

Those mortgagors with the financial firm came under its jurisdiction after Lone Star acquired pools of delinquent mortgages from HUD in auctions for the securities, including a June 2014 auction that resulted in Lone Star funds purchasing all 16 mortgage pools on the block.

The class-action participants maintain Lone Star did not allow homeowners to participate in HAMP or offer a similar program. Caliber Home Loans, a Lone Star subsidiary that services mortgages, offers two separate programs, neither of which are an appropriate substitute for HAMP, according to the complaint.

Marion McDougall, executive vice president and chief loan administration officer at Caliber, denied the accusations made against the financial firm.

“This lawsuit is without merit,” he said in an emailed statement. “Caliber is committed to treating all borrowers fairly, to helping families stay in their homes where it is feasible, and has complied with all [Federal Housing Administration]-mandated servicing requirements. Every Caliber loan modification is reviewed thoroughly without regard to race, gender, religious, or sexual orientation.”

A HUD spokeswoman could not be reached for comment. An attorney with MFY, which provided PDI with the complaint, was not available for follow-up comment.

The programmes Lone Star offers include a five-year interest-only modification and a five-year standard modification. Both programs delay collection of the principal amount and create a balloon payment due once the mortgage matures, according to court documents.

Under the interest-only modification, the plaintiffs said mortgage payments increased by $500 to $1,600 a month once the five-year period expired, while those borrowed under the standard modification option saw their monthly payments go up by more than $300 a month.

The plaintiffs maintain African-Americans are disproportionately affected by the mortgages sold off by HUD from 2012 to 2014, figures listed in the complaint showed. According to the court filing, black borrowers from the Federal Housing Administration make up 35 percent of those New Yorkers that took out mortgages. Black homeowners owned some 61.3 percent of mortgages sold in the auctions.