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? That's because the
"recovery," as they're calling it, is fueled almost entirely by Wall
Street private equity, hedge funds, and the Fed's unwavering support. That's
right. 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 as the recovery we need to get the
economy going again -- the "private sector solution." 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 neighborhood
and lowering values. Sure. 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 the properties 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 sale. The vast majority of these homes are not empty, but in
fact 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
their subsidiary, THR Georgia, buys the homes for cash, usually at deep
discounts from the principal balance owed on the mortgage.
Take one of the homes they snapped up at the November
auction as an example: THR purchased the Southeast Atlanta home at auction for
$90,000. The principal due on the mortgage that was foreclosed upon was
$219,300. If banks were willing to offer principal 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 are getting a flier posted on their door the day after
Blackstone purchases it, 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 3-minute commercial for Invitation
Homes posted on the company's website, 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 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. Their
website touts the array of services they offer 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 their 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. Jonathan Gray wouldn't know much about that though. He made
$36.5 million in 2011. His boss, Blackstone CEO Stephen Schwarzman, made $148.5
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, Blackstone Alternative Asset Management,
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 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.
Shabnam Bashiri
