FacebookTwitterGoogle+RedditEmail

The Foreclosure-to-Rental Boondoggle

“The national housing market took a hit in the latter half of 2011, falling to new lows not seen since the housing crisis began six years ago, according to data out Tuesday by S&P/Case-Shiller Home Price Indices……The index is down 33.6 percent from its peak in mid-2006.”

Washington Post

The reason that housing prices have dipped only 33.6 percent in the United States instead of 60 percent as they have in Ireland, is because the big banks have been keeping inventory off the market. If the millions of homes–that are presently headed for foreclosure–were suddenly dumped onto the market, prices would plunge and the biggest banks in the country would be declared insolvent. That’s why the banks have slowed the flow of foreclosures. According to Amherst Securities Group’s Laurie Goodman, “….2.8 million borrowers haven’t made a payment in over a year. Add that to the over 450,000 real estate owned (REO) units and you have approximately 3.2 million that are in the shadows. We are liquidating about 90,000 homes a month. That’s about 36 months of overhang; a really shocking number.” (See the whole interview here.)

Indeed, it is shocking, but what’s more shocking is that the banks are allowed to game the system this way and get away with it. New home buyers are paying hundreds of thousands of dollars more than they would be if the banks were not manipulating inventory, so there are real victims in this scam. . And is it really conceivable that Fed doesn’t know that nearly 3 million people are living in their homes for free? Of course, they know; they’re in on it too. The bankers even have a name for this arrangement; they call it “squatters rent” and they estimate it costs them an extra $60 billion per year. They would rather pay that hefty sum then foreclose quickly and have to write down the losses which would leave them broke.

Some readers will probably dispute the claim that housing prices could dip 60 percent in the US as they have in Ireland. These skeptics may want to read a new study titled “Housing, Monetary Policy, and the Recovery” released by the chief economists from the country’s two largest banks (Find it here.)

On page 29 of the report, the authors conclude that it would take “a 57% fall in housing prices would in our accounting sense eliminate housing overhang”. Their second projection estimates that it would take “a 68%” drop. So, if you bought a house in 2005
for $400,000. That house would currently be worth $128,000, a big enough loss to poke holes in anyone’s retirement plans.

So, what should the government do? Should they force the banks to release the backlog homes so prices can adjust quickly and new buyers won’t feel like they’re being gouged? But–if they do–what happens to all the people who bought homes in the last few years who suddenly discover they’re underwater? Won’t that create a whole new wave of foreclosures?

The best approach would be to reduce the principle on the mortgages of the people who are presently in some stage of foreclosure and make the banks pay for the losses. That would slow the stream of foreclosures to a trickle, stabilize the housing market, and force many of the banks into Chapter 11, which should be real goal of any mortgage modification program. The banks were the perpetrators of this gigantic mortgage laundering scam and continue to pose a threat to the financial security of every American. Dismatling the TBTF banks should be the nation’s highest priority.

The Obama administration has chosen an alternate course in its endless effort to appease the bank lobby. They’ve launched a Foreclosure-to-Rental program that’s aimed at severely reducing the backlog of unwanted homes on the banks books via bulk sales to private investors. The program–which is largely shrouded in secrecy– is being hyped as a common sense way to stabilize the housing market and to ‘lower monthly payments so responsible borrowers can stay in their homes.’ In truth, Obama is just helping the banks slash their mountainous inventory so they can avoid bankruptcy.

Here’s part of the announcement from the FHA:

“The Federal Housing Finance Agency (FHFA) today announced the first pilot transaction under the Real Estate-Owned (REO) Initiative, targeted to hardest-hit metropolitan areas — Atlanta, Chicago, Las Vegas, Los Angeles, Phoenix and parts of Florida.

With this next step, prequalified investors will be able to submit applications to demonstrate their financial capacity, experience and specific plans for purchasing pools of Fannie Mae foreclosed properties with the requirement to rent the purchased properties for a specified number of years.” (FHA)

So far,  2,500 Fannie Mae-owned properties have been sold to private investors. But–here’s the problem–“85% of the units are already being rented, and almost 60% of the units are on term leases.” (Calculated Risk) So, everything Obama said about the program was a lie. This isn’t a foreclosure-to-rental program; it’s a property-dump proffered to financial insiders who are getting cheap government financing to fatten the bottom line.

“The original idea behind the REO-to-rental program was to sell vacant REO to investors and only in certain areas. These investors would agree to rent the properties for a certain period, and that would reduce the number of vacant units on the market…. This offer doesn’t seem to match that goal,” says Calculated Risk.

Fancy that; another boondoggle-ripoff compliments of President Hopium. Who could have known?

Here’s a clip from the FHA’s Meg Burns:

“The pilot transaction very much gets at the issue at hand-helping to stabilize communities by keeping people in their homes where possible…This helps stabilize neighborhoods because many of the properties will continue as rentals instead of moving quickly to the for-sale market. In addition, it is easiest to price properties with renters already in place, which should help to attract investor interest. “ (Washington Post)

Sorry, Meg, don’t piss on my leg and tell me it’s raining. This is the old switcheroo pure and simple. The fact that the properties already have renters means that the investors will be raking in sizable returns from Day 1. That’s not the way the program was sold to the public. The American people have been hoodwinked again.

Here’s more from the FHA’s February 27 announcement:

“In order to ensure compliance with applicable securities laws and regulations, details of the sales announcement will be sent to prequalified investors per FHFA’s Feb. 1 announcement. Subsequently, investors who post a security deposit and sign a confidentiality agreement will gain access to detailed information about the properties. At that stage, interested investors must submit a comprehensive application, which will be reviewed by an outside firm. Only investors who are qualified through this rigorous process will be eligible to bid.”

Okay. So, John Q. Public–the little investor–is completely excluded from this massive transfer of real wealth to private equity, hedge funds and other deep-pocket Obama campaign contributors. That’s to be expected. But what’s the so called “confidentiality agreement” all about. Does Obama really think he can shower his dodgy friends with hundreds of billions of dollars in dirt-cheap property and keep the whole matter under wraps?

Dream on, Barry. And what about the financing? Are these cutthroat property scamsters digging into their own pile of cash to pay for these foreclosures or is Uncle Sugar providing 60, 70, 80, or 90 percent financing at rock-bottom rates of .01 percent? That’s what we want to know.

This is not how honest people deal with a crisis if they genuinely have the public’s interest at heart. This is just more-of-the-same fleece-job larceny that was perfected by the Bush claque. Wasn’t Obama going to change all that?

We are only half way through the foreclosure crisis. The experts predict there will be another 7 to 11 million mortgage defaults in the next few years. That means we need a game plan that will keep as many people in their homes as possible while reducing the vast overhang of supply that has left the market in a shambles. It’s a tough job, but it can be done provided the interests of the victims are placed above those of the banks. Fat chance of that, eh?

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, forthcoming from AK Press. He can be reached at fergiewhitney@msn.com

 

More articles by:

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

July 17, 2018
Conn Hallinan
Trump & The Big Bad Bugs
Robert Hunziker
Trump Kills Science, Nature Strikes Back
John Grant
The Politics of Cruelty
Kenneth Surin
Calculated Buffoonery: Trump in the UK
Binoy Kampmark
Helsinki Theatrics: Trump Meets Putin
Patrick Bond
BRICS From Above, Seen Critically From Below
Jim Kavanagh
Fighting Fake Stories: The New Yorker, Israel and Obama
Daniel Falcone
Chomsky on the Trump NATO Ruse
W. T. Whitney
Oil Underground in Neuquén, Argentina – and a New US Military Base There
Doug Rawlings
Ken Burns’ “The Vietnam War” was Nominated for an Emmy, Does It Deserve It?
Rajan Menon
The United States of Inequality
Thomas Knapp
Have Mueller and Rosenstein Finally Gone Too Far?
Cesar Chelala
An Insatiable Salesman
Dean Baker
Truth, Trump and the Washington Post
Mel Gurtov
Human Rights Trumped
Binoy Kampmark
Putin’s Football Gambit: How the World Cup Paid Off
July 16, 2018
Sheldon Richman
Trump Turns to Gaza as Middle East Deal of the Century Collapses
Charles Pierson
Kirstjen Nielsen Just Wants to Protect You
Brett Wilkins
The Lydda Death March and the Israeli State of Denial
Patrick Cockburn
Trump Knows That the US Can Exercise More Power in a UK Weakened by Brexit
Robert Fisk
The Fisherman of Sarajevo Told Tales Past Wars and Wars to Come
Gary Leupp
When Did Russia Become an Adversary?
Uri Avnery
“Not Enough!”
Dave Lindorff
Undermining Trump-Putin Summit Means Promoting War
Manuel E. Yepe
World Trade War Has Begun
Binoy Kampmark
Trump Stomps Britain
Wim Laven
The Best Deals are the Deals that Develop Peace
Kary Love
Can We Learn from Heinrich Himmler’s Daughter? Should We?
Jeffrey St. Clair
Franklin Lamb, Requiescat in Pace
Weekend Edition
July 13, 2018
Friday - Sunday
Brian Cloughley
Lessons That Should Have Been Learned From NATO’s Destruction of Libya
Paul Street
Time to Stop Playing “Simon Says” with James Madison and Alexander Hamilton
Jeffrey St. Clair
Roaming Charges: In the Land of Formula and Honey
Aidan O'Brien
Ireland’s Intellectuals Bow to the Queen of Chaos 
Michael Collins
The Affirmative Action Silo
Andrew Levine
Tipping Points
Geoff Dutton
Fair and Balanced Opinion at the New York Times
Ajamu Baraka
Cultural and Ideological Struggle in the US: a Final Comment on Ocasio-Cortez
David Rosen
The New McCarthyism: Is the Electric Chair Next for the Left?
Ken Levy
The McConnell Rule: Nasty, Brutish, and Unconstitutional
George Wuerthner
The Awful Truth About the Hammonds
Robert Fisk
Will Those Killed by NATO 19 Years Ago in Serbia Ever Get Justice?
Robert Hunziker
Three Climatic Monsters with Asteroid Impact
Ramzy Baroud
Europe’s Iron Curtain: The Refugee Crisis is about to Worsen
Nick Pemberton
A Letter For Scarlett JoManDaughter
Marilyn Garson
Netanyahu’s War on Transcendence 
FacebookTwitterGoogle+RedditEmail