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» VISIT US ONLINE @ DSNEWS.COM 65 D'Vari's view of the GSEs is one that is more traditional. "At the end of the day, they are there to provide housing finance, not to be a distressed mortgage player," he said. "eir mandate is to effectively help housing grow." Aside from the usual private equity and hedge funds, D'Vari says single-family investors remain a major player in the market. He added, "e single-family rental guys are looking at bidding on these loans, especially the guys doing this in volume. It is a good place for them to get a big pool and to get the right resources to go about it." Senator Warren's own view on NPLs seems contradictory on the surface. Back in 2013, Warren herself warned that "Fannie and Freddie cannot remain in conservatorship indefinitely, and taxpayers should not bear the risk of nearly all of the $10 trillion housing market." When Mel Watt announced the sale of nonperforming loans, he did so in part to protect taxpayers from risk, according to his own statements. DS News reached out to Senator Warren for an explanation, and she declined to comment any further. But her insistence on fighting against the risks posed by GSE dominance in the marketplace and her pushback against the NPL sales are contradictory in their desired outcomes. Ed Gorman with NCRC says Warren's view on the sell-off has more to do with her concern that the push for neighborhood stabilization outcomes through the use of community organizations and private capital has been less aggressive. "e concerns we've had from the beginning have been that it does not make sense for the nation's pre-eminent homeownership securitizer to be engaged in a system that dumps delinquent notes back into the market, knowing that the vast majority of them will become rental properties that are owned in bulk for the sole purpose of providing a high cash-on-cash return," Gorman added. Instead, Gorman says, "We have been advocating for greater use for what are called neighborhood stabilization outcomes. We have advocated for change to ensure there is greater homeownership percentage that comes out of them … You can say you are protecting the American taxpayer by getting the highest price possible currently for a delinquent note, but we will be paying the price down the road if neighborhoods trend toward rentals at a cost to consumers that is much higher than what they would have paid if they were homeowners." Senator Warren protested the NPL sales when she recognized not enough strategies were deployed to try to create more stabilized outcomes for communities hit by foreclosures, Gorman claims. With that in mind, he suggests, Warren essentially jumped in saying, "We don't want to see people who could otherwise stay in their homes through a mod to lose that opportunity because we moved too quickly to move these properties to big investors. at is the inherent criticism from Warren," Gorman says. e only problem is community groups often lack the resources or financing to effectively service loans and to take on the challenge. is is where Louis Amaya of NS Capital Management (Neighborhood Stabilization Capital Management) comes in. His firm mixes private capital with nonprofit ownership and experience which helps government organizations like HUD sell off their loans to investors, who will need his firm's spot on the secondary mortgage market to obtain what HUD calls a Neighborhood Stabilization Outcome (NSO). Essentially, NS Capital Management acquires loans from investors who purchased the nonperforming loans from HUD NSO auctions. By selling the loans off to Amaya's group, they get the benefit of obtaining NSO credit since Amaya's firm is able to then resell the loans to nonprofits or enact neighborhood stabilization activities. e firm is 51% owned by a nonprofit, but has the ability to raise capital. NS Capital Management's goal is to help Fannie and Freddie NPLs achieve more stabilization outcomes by doing something similar for them. Even though Warren wants nonprofits to get a crack at the GSEs' non-performing loans, Amaya sees challenges unless the paradigm shifts. "HUD has done a great job at carving out NSO pools and trying to attract non- profit buyers, especially through the non- profit only auctions that HUD has recently started. However, most buyers of HUD and all of Fannie/Freddie pools are still sold to institutional investors," he noted. "Freddie and Fannie are talking about instituting a similar NSO or non-profit program similar to HUDs, but the size of their auctions are geared towards large institutional investors. We want to create a nonprofit secondary market," he explained. "We are approving local and regional nonprofits and reselling a chunk of our loans to the local communities. What we did at a micro-level with HUD is to be able to buy loans as a nonprofit with expertise in managing pricing and trading while building a viable business at the national level." Ultimately Amaya hopes to be the market solution that resolves the yin and yang debate between those who are focused on communities finding affordable homes and control at the grassroots level, and those who believe private investors are the ones with the capital and fortitude to make deals stick and to take these loans off the GSEs' hands. Amaya believes you can achieve viable returns and have a positive impact, it is not a zero sum game. e true question is whether there is a common bridge for all stakeholders in the 'Fannie and Freddie NPL sell-off ' debate to stand on—and whether interested stakeholders will be willing to cross that bridge together when the times comes. "As an active observer of the industry, I would be 100% in Elizabeth Warren's camp on this, although I am almost never in her camp on anything." - Dick Bove, equity research analyst at Rafferty Capital Markets COVER STORY INDUSTRY INSIGHT INDUSTRY INSIGHT

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