HUD and the FHA are selling non- performing mortgages to hedge funds at a steep discount. The hedge funds hope to make a profit by assuming these mortgages at a steep discount from their face value. That puts them in a position to foreclose on mortgages and sell the homes for more than the discounted value of the mortgages they purchased. Warren argues that HUD and the FHA could have prevented foreclosures by cutting the principle on the non-performing loans instead of selling the mortgages to hedge funds at a discount. Apparently, the hedge funds have more clout with HUD and the FHA than homeowners who were suckered into purchasing homes they could not afford by loan originators who sold the mortgages to banks that packaged them into toxic securities that they sold to investors.
HUD and the FHA are under the control of the Obama Administration. They could have reduced the principle on the mortgages on their own authority. Warren and Bernie Sanders have been advocating populist policies that are not popular with many Democrats who cannot run political campaigns without the support of wealthy contributors. The Obama Administration would also be attacked by Tea Party populists who would rather see hedge funds buy mortgages at a steep discount than cut the principle on non-performing mortgages.