In the past several years, a slew of bargain-hunting banks, hedge funds and other financial institutions descended on Puerto Rico to scoop up distressed residential mortgages and foreclosed homes. The list includes big investment banks like Credit Suisse and Goldman Sachs and smaller boutiques including Perella Weinberg and an affiliate of the private-equity firm TPG Capital, which is an investor in a Cayman Islands mortgage investment company.
The recent devastation is likely to further depress housing prices. That's partly because the "mass exodus" of Puerto Ricans going to the continental United States means the demand for housing "has gone down substantially," said Laurie Goodman, director of the Urban Institute's Housing Finance Policy Center.
If normal patterns held, that would be bad news for the investment firms that gambled on Puerto Rico's housing market. But normal patterns don't necessarily apply here, given that some mortgages are guaranteed by a federal insurance fund.
Consider Blackstone Group, the big private equity firm. Blackstone owns a company, Finance of America Reverse, that specializes in a type of home loan called a reverse mortgage, which is guaranteed by the federal government.
The loans are a way for people 62 or older to tap the equity they have built up in their homes; the principal and interest are payable when the borrower dies. The loans require borrowers to keep paying taxes and homeowner's insurance on a property. Reverse mortgages have a history of abuse. Lenders often don't fully explain the loans' terms.
There are 10,000 reverse mortgages in Puerto Rico, and Finance of America controls about 40 percent of the market, according to the Department of Housing and Urban Development, which oversees the government insurance fund that guarantees a lender will be repaid on a reverse mortgage.
If Finance of America sells a foreclosed home for less than the value of the mortgage, the firm can make a claim to the insurance fund to make up the difference. In that case, taxpayers would be on the hook
Court records show that the Blackstone-controlled company is aggressive in its pursuit of — and foreclosures on — borrowers.
Since 2015, Finance of America and a predecessor firm have filed 500 foreclosures in federal court.
José Gonzalez-Lopez "feels harassed" after Finance of America initiated a foreclosure case against him for the third time in two years, according to his lawyer, Juan Carlos Cancio-Reichard. He said the first two cases had been dismissed after the lender incorrectly claimed Mr. Gonzalez-Lopez, 73, had not paid for homeowner's insurance on the property.
Now Finance of America has claimed Mr. Gonzalez-Lopez did not pay property taxes on the house — something the borrower disputes. Mr. Cancio-Reichard said his client had recently gotten the Puerto Rico Treasury Department to certify there were no unpaid taxes on his account. The lawyer is asking Finance of America's lawyer to voluntarily dismiss the case.
"José thinks they want to get him out of the house," Mr. Cancio-Reichard said.
Sara Sefcovic, a Finance of America spokeswoman, said the firm could not speak about specific cases, but "foreclosure is a last resort for our company."
She added that the firm is "required to follow federal guidelines for this program and have virtually no discretion over whether or not to initiate a foreclosure proceeding."
To file a foreclosure for any reason other than the death of the borrower, a reverse mortgage lender must get approval from an outside mortgage-servicing firm working for the Department of Housing and Urban Development. Over the past three years, the department has given more than 1,500 such approvals to reverse mortgage lenders in Puerto Rico.