The housing “recovery” is a myth

Wall Street is running a new profit game by buying foreclosed homes and renting them back to their former owners

Topics: AlterNet, U.S. Economy, Housing, Recovery, Wall Street, , ,

The housing "recovery" is a myth (Credit: Reuters/Mark Blinch)
This article originally appeared on AlterNet.

AlterNet

Every day, it seems a new report comes out praising the ongoing housing recovery. In Georgia, home prices are up 5 percent over last year, a year in which we also had one of the highest foreclosure rates in the country. Seems a little odd, doesn’t it? Don’t foreclosures usually drive down the market?

That’s because the housing “recovery,” as they’re calling it, is fueled almost entirely by Wall Street private equity firms, hedge funds and the Fed’s unwavering support. After creating a massive bubble in home prices that eventually burst and caused our economy to go into a tailspin, these guys have decided to come back for more, and figured out a way to profit off their destruction — by turning foreclosed homes into rentals and securitizing the rental income.

Many are claiming this is the “private-sector solution” for the recovery we need to get the economy going again. The argument goes that investors snapping up these homes and fixing them up does more for the community than letting the houses just sit there, blighting the neighborhoods and lowering values.

That argument might have made sense for the pilot program Fannie Mae launched last year. In that bulk auction deal, investors had to agree not to sell properties facing foreclosure for a designated period of time. Many of the homes were occupied with tenants, and vacant homes had been on the market and not sold for at least six months. Of course, that deal proved too restrictive for most Wall Street types, leading the sale in Atlanta to eventually fall through.

The Blackstone group, the biggest player in the new REO to rental market, has spent $2.5 billion in the last year purchasing 16,000 homes, a number that amounts to over $100 million per week. Property records show that many of the homes Blackstone has acquired in Fulton County over the last few months were purchased on the courthouse steps at the monthly foreclosure auction, or through short sales—when a lender agrees to accept less than the amount owed on a loan. The vast majority of these homes are not empty, but occupied by homeowners who fell behind during the great recession.



The sale often represents the last nail in the coffin of foreclosure in Georgia, a non-judicial foreclosure state where there is very little opportunity or time to make good once a homeowner falls into default. Blackstone, operating under its subsidiary, THR Georgia, buys the homes for cash, usually at deep discounts from the principle balance owed on the mortgage. Take one of the homes it snapped up at the November auction as an example: THR purchased the Southeast Atlanta home at auction for $90,000. The principle due on the mortgage that was foreclosed upon was $219,300.

If banks were willing to offer principle reduction on these inflated mortgages down to the same price they are willing to sell at auction, many homeowners would likely be able to afford their payments, and stay in their homes for years to come, contributing to the stability of the neighborhood. Instead, homeowners get a flier posted on their door the day after Blackstone purchases the home, offering them the opportunity to rent the home they once owned. Meanwhile, the deep pockets of firms like Blackstone allows them to outbid virtually everyone else in the market—eliminating any chance of owner occupants looking for a new home to get a good deal while prices and interest rates are low.

Blackstone has partnered with Dallas-based Riverstone Residential, the nation’s largest third-party property management company, to form “Invitation Homes.” In a three-minute commercial for Invitation Homes posted on the company’s Web site, Jonathan Gray, head of global real estate at Blackstone, claims that “there are 12 million single family homes for rent in America, but it’s not done on an institutional basis.”

The rental market has traditionally been dominated by mom-and-pop investors, most with fewer than a couple dozen properties. Many landlords build relationships with their tenants, and the communities in which the homes are located. They hire local contractors to do maintenance work, and spend the income generated from rent back in the local economy.

That’s not how Riverstone operates. Its Web site touts the array of services it offers in-house for property owners, from contracts with telecom and utility providers, and exclusive partnerships with suppliers, to in-house screening and debt collection. Riverstone is a one-stop shop for property management.

Probably the most disturbing of all is the partnership between Riverstone and credit reporting agency Experian. Riverstone entered into an agreement last year with Experian Rent, to turn over real-time payment history on all of its residents to be compiled into a national database.

A press release Experian put out when the deal was announced stated that, “by furnishing resident rental payment history data to Experian RentBureau, Riverstone will immediately enhance the effectiveness of its rental collections while decreasing bad debt levels and encouraging proactive rental payment practices among its residents, leading directly to increases in net operating income (NOI) and the bottom line.”

This kind of data will help Blackstone and other large firms to eliminate some of the doubt and uncertainty around renters and their stability to investors. For the average renter, however, the consequences could be detrimental. Gone are the days of calling up your landlord to let them know rent will be there on the 7th instead of the 1st this month. As more and more Americans live paycheck to paycheck, and wages continue to decline or remain stagnant, paying rent a few days late could lead to a negative credit score, impacting their ability to secure resources and move up the ladder of the middle class.

Blackstone’s Jonathan Gray wouldn’t know much about that. He made $36.5 million in 2011. His boss, Blackstone CEO Stephen Schwarzman made $213.5 million. This new plan further grows the disconnect between Wall Street and Main Street, and the difference between the 1 percent and the 99 percent.

Interestingly enough, purchasing single-family homes isn’t Blackstone’s only recent foray into the housing market. In the lead-up to the crash, Blackstone’s hedge fund group, BAAM, chose to bet against the subprime market, purchasing credit default swaps and collecting billions in profits when the cards fell.

Blackstone’s hedge funds are now spending millions purchasing those very same subprime mortgage bonds for pennies on the dollar, betting on home prices going up, leading more homeowners to refinance and reinstating the value of these junk bonds. It’s a constant game of speculation for Wall Street, which culminates in bubbles being created, the rich getting richer, and communities losing control over the places they live.

In the wake of one of the greatest financial disasters in modern times, you’d think we’d have learned our lesson. Like they say, fool me once, shame on you. Fool me twice, shame on me. Maybe what we need this time around are solutions that help people find long-term housing stability, instead of chasing short-term fixes that will land us right back where we started.

More Related Stories

Featured Slide Shows

  • Share on Twitter
  • Share on Facebook
  • 1 of 11
  • Close
  • Fullscreen
  • Thumbnails

    Ten spectacular graphic novels from 2014

    Beautiful Darkness by Fabien Vehlmann & Kerascoët
    Kerascoët's lovely, delicate pen-and-watercolor art -- all intricate botanicals, big eyes and flowing hair -- gives this fairy story a deceptively pretty finish. You find out quickly, however, that these are the heartless and heedless fairies of folk legend, not the sentimental sprites beloved by the Victorians and Disney fans. A host of tiny hominid creatures must learn to survive in the forest after fleeing their former home -- a little girl who lies dead in the woods. The main character, Aurora, tries to organize the group into a community, but most of her cohort is too capricious, lazy and selfish to participate for long. There's no real moral to this story, which is refreshing in itself, beyond the perpetual lessons that life is hard and you have to be careful whom you trust. Never has ugly truth been given a prettier face.

    Ten spectacular graphic novels from 2014

    Climate Changed: A Personal Journey Through the Science by Philippe Squarzoni
    Squarzoni is a French cartoonist who makes nonfiction graphic novels about contemporary issues and politics. While finishing up a book about France under Jacques Chirac, he realized that when it came to environmental policy, he didn't know what he was talking about. "Climate Changed" is the result of his efforts to understand what has been happening to the planet, a striking combination of memoir and data that ruminates on a notoriously elusive, difficult and even imponderable subject. Panels of talking heads dispensing information (or Squarzoni discussing the issues with his partner) are juxtaposed with detailed and meticulous yet lyrical scenes from the author's childhood, the countryside where he takes a holiday and a visit to New York. He uses his own unreachable past as a way to grasp the imminent transformation of the Earth. The result is both enlightening and unexpectedly moving.

    Ten spectacular graphic novels from 2014

    Here by Richard McGuire
    A six-page version of this innovative work by a regular contributor to the New Yorker first appeared in RAW magazine 25 years ago. Each two-page spread depicts a single place, sometimes occupied by a corner of a room, over the course of 4 billion years. The oldest image is a blur of pink and purple gases; others depict hazmat-suited explorers from 300 years in the future. Inset images show the changing decor and inhabitants of the house throughout its existence: family photos, quarrels, kids in Halloween costumes, a woman reading a book, a cat walking across the floor. The cumulative effect is serene and ravishing, an intimation of the immensity of time and the wonder embodied in the humblest things.

    Ten spectacular graphic novels from 2014

    Kill My Mother by Jules Feiffer
    The legendary Pulitzer Prize-winning cartoonist delivers his debut graphic novel at 85, a deliriously over-the-top blend of classic movie noir and melodrama that roams from chiaroscuro Bay City to Hollywood to a USO gig in the Pacific theater of World War II. There's a burnt-out drunk of a private eye, but the story is soon commandeered by a multigenerational collection of ferocious women, including a mysterious chanteuse who never speaks, a radio comedy writer who makes a childhood friend the butt of a hit series and a ruthless dame intent on making her whiny coward of a husband into a star. There are disguises, musical numbers and plenty of gunfights, but the drawing is the main attraction. Nobody convey's bodies in motion more thrillingly than Feiffer, whether they're dancing, running or duking it out. The kid has promise.

    Ten spectacular graphic novels from 2014

    The Motherless Oven by Rob Davis
    This is a weird one, but in the nervy surreal way that word-playful novels like "A Clockwork Orange" or "Ulysses" are weird. The main character, a teenage schoolboy named Scarper Lee, lives in a world where it rains knives and people make their own parents, contraptions that can be anything from a tiny figurine stashable in a pocket to biomorphic boiler-like entities that seem to have escaped from Dr. Seuss' nightmares. Their homes are crammed with gadgets they call gods and instead of TV they watch a hulu-hoop-size wheel of repeating images that changes with the day of the week. They also know their own "death day," and Scarper's is coming up fast. Maybe that's why he runs off with the new girl at school, a real troublemaker, and the obscurely dysfunctional Castro, whose mother is a cageful of talking parakeets. A solid towline of teenage angst holds this manically inventive vision together, and proves that some graphic novels can rival the text-only kind at their own game.

    Ten spectacular graphic novels from 2014

    NOBROW 9: It's Oh So Quiet
    For each issue, the anthology magazine put out by this adventurous U.K.-based publisher of independent graphic design, illustration and comics gives 45 artists a four-color palette and a theme. In the ninth issue, the theme is silence, and the results are magnificent and full of surprises. The comics, each told in images only, range from atmospheric to trippy to jokey to melancholy to epic to creepy. But the two-page illustrations are even more powerful, even if it's not always easy to see how they pertain to the overall concept of silence. Well, except perhaps for the fact that so many of them left me utterly dumbstruck with visual delight.

    Ten spectacular graphic novels from 2014

    Over Easy by Mimi Pond
    When Pond was a broke art student in the 1970s, she took a job at a neighborhood breakfast spot in Oakland, a place with good food, splendid coffee and an endlessly entertaining crew of short-order cooks, waitresses, dishwashers and regular customers. This graphic memoir, influenced by the work of Pond's friend, Alison Bechdel, captures the funky ethos of the time, when hippies, punks and disco aficionados mingled in a Bay Area at the height of its eccentricity. The staff of the Imperial Cafe were forever swapping wisecracks and hopping in and out of each other's beds, which makes them more or less like every restaurant team in history. There's an intoxicating esprit de corps to a well-run everyday joint like the Imperial Cafe, and never has the delight in being part of it been more winningly portrayed.

    Ten spectacular graphic novels from 2014

    The Shadow Hero by Gene Luen Yang and Sonny Liew
    You don't have to be a superhero fan to be utterly charmed by Yang and Liew's revival of a little-known character created in the 1940s by the cartoonist Chu Hing. This version of the Green Turtle, however, is rich in characterization, comedy and luscious period detail from the Chinatown of "San Incendio" (a ringer for San Francisco). Hank, son of a mild-mannered grocer, would like to follow in his father's footsteps, but his restless mother (the book's best character and drawn with masterful nuance by Liew) has other ideas after her thrilling encounter with a superhero. Yang's story effortlessly folds pathos into humor without stooping to either slapstick or cheap "darkness." This is that rare tribute that far surpasses the thing it celebrates.

    Ten spectacular graphic novels from 2014

    Shoplifter by Michael Cho
    Corinna Park, former English major, works, unhappily, in a Toronto advertising agency. When the dissatisfaction of the past five years begins to oppress her, she lets off steam by pilfering magazines from a local convenience store. Cho's moody character study is as much about city life as it is about Corinna. He depicts her falling asleep in front of the TV in her condo, brooding on the subway, roaming the crowded streets after a budding romance goes awry. Like a great short story, this is a simple tale of a young woman figuring out how to get her life back, but if feels as if it contains so much of contemporary existence -- its comforts, its loneliness, its self-deceptions -- suspended in wintery amber.

    Ten spectacular graphic novels from 2014

    Through the Woods by Emily Carroll
    This collection of archetypal horror, fairy and ghost stories, all about young girls, comes lushly decked in Carroll's inky black, snowy white and blood-scarlet art. A young bride hears her predecessor's bones singing from under the floorboards, two friends make the mistake of pretending to summon the spirits of the dead, a family of orphaned siblings disappears one by one into the winter nights. Carroll's color-saturated images can be jagged, ornate and gruesome, but she also knows how to chill with absence, shadows and a single staring eye. Literary readers who cherish the work of Kelly Link or the late Angela Carter's collection, "The Bloody Chamber," will adore the violent beauty on these pages.

  • Recent Slide Shows

Comments

0 Comments

Comment Preview

Your name will appear as username ( settings | log out )

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>