Wall Street slumlords’ outrageous new scheme: How they could wreck the economy again

[unhappycamper]

http://www.salon.com/2013/11/06/wall_street_slumlords_outrageous_new_scheme_how_they_could_wreck_economy_again/?source=newsletter



Remember mortgage-backed securities and the financial crisis they caused? This latest gambit will put you in shock

Wall Street slumlords’ outrageous new scheme: How they could wreck the economy again
David Dayen
Wednesday, Nov 6, 2013 07:44 AM EST

You’d think that investors would run away from a new Wall Street innovation as fast as Congress runs away from a good idea. But instead, they’re flocking to the latest product peddled by large banking interests, even though they look almost exactly like the mortgage-backed securities that were a primary driver of the financial crisis. These new securities, backed by rental payments, also have real-world implications for millions of renters, who could end up turning in their monthly checks to Wall Street-based absentee slumlords.

Over the past couple of years, private equity firms and hedge funds have bought up over 200,000 single-family homes, mostly discounted foreclosed properties in communities wrecked by the housing crash, such as Phoenix, Atlanta, Tampa, Sacramento, Los Angeles and Riverside, Calif. They have spent billions to scoop up these vacant homes at fire-sale prices, renovate them, and rent them out, promising investors double-digit annual returns on the rental revenue. Private equity firms like Blackstone, which owns more than 40,000 single-family homes, think they can build an entirely new asset class out of this scheme, controlling the rental market for single-family homes. The irony is rich: Wall Street created the conditions for millions of foreclosures, then they sweep in to buy up the homes and rent them out, often to the same people they kicked onto the street.

In order for this to work, firms need cash to outbid the competition. So Blackstone teamed with Deutsche Bank, Credit Suisse and JPMorgan Chase to put together the first-ever rental revenue bond, named “Invitation Homes 2013-SFR1.” Basically, Blackstone took out mortgages with the banks on 3,207 of its rental properties, in exchange for $479 million in cash, and they will forward rental payments to the bondholders to pay back the loan.

Blackstone plans to use the $479 million to purchase more homes. This facilitates the single-family rental scheme, by giving firms a fresh source of cheap money to spend on cornering rental markets, wrestling them away from traditional mom-and-pop rental management companies. The entire industry has looked hopefully upon the Blackstone effort as something they can replicate. One investment firm president remarked, “We’re rooting for them.” Investors are eyeing the securities as well: With interest rates still minuscule, they want to invest in something that can guarantee them a higher yield.

[Demeter]

1. Yeah, get your all day suckers right here...

[kickysnana]

2. Interesting crosspost.

How Federal Reserve and banking policy is accelerating income disparity: Financial obligations ratio soars for renters while declining for homeowners. Problem is, we have less homeowners.

http://www.democraticunderground.com/111643217