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Economics

How hedge funds and Wall Street are still profiting from the market crash

Hedge funds and other major players that contributed to the housing market crash of the late 2000s are now reaping a profit.

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home seller

Many of the major hedge funds, private equity firms, and Wall Street investment banks that contributed to the housing market crash of the late 2000s, are now reaping a profit from purchasing foreclosed or soon-to-foreclose single-family homes. Through syndicate ownership of housing properties, many large private equity firms like Blackstone Group and Lone Star Funds have made enormous investments in the single-family housing market.

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In turn, these houses are rented out to families who often suffer serious negative results including increasing rent prices, poor house maintenance and management, leases that highly favor the management company, and even management companies that have sketchy track records with recording and applying tenant rental payments.

Rent is going up, up, up

Blackstone’s subsidiary company, Invitation Homes, has been documented as having charged up to 180 percent of the fair market rent in a given city. Over the next decade, we can anticipate rent to increase by 3 percent annually, but rise even higher in areas where Wall Street controls the housing market.

Wall Street reaping the benefits

These conditions wouldn’t be so terrible if renters could look elsewhere for housing, but the market has become dominated by these major institutional investors and it’s not easy to find a good alternative. In fact, of the 150,000 distressed single-family properties and mortgage loans auctioned of by HUD and FHFA in the last few years, less than 2 percent went to nonprofit buyers. The remaining 98 percent went to Wall Street companies, and America’s home ownership rate dipped from 69.1 percent to 63.1 percent in the second quarter of 2015.

If HUD and FHFA continue their process of auctioning foreclosures to the highest bidder, we are in danger of depleting the number of affordable owner-occupied housing options and lowering our standard of living, all while Wall Street benefits from selling to the same people they displaced in the market crash.

The silver lining

While Wall Street investors seek to exploit their tenants and continue profiting, community development financial institutions (CDFIs) aim to purchase large inventories of properties on the brick of foreclosure, and convert them to affordable housing options. CDFIs raise funds through both public and private sources and work with local governments and neighborhood organizations to provide financial services to communities in need.

As discontent with the market spreads, mayors, senators, and community leaders are appealing to HUD and FHFA in an attempt to even out the playing field for nonprofits hoping to bid on distressed properties. Rather than the current auction process, which sells foreclosures to the highest bidder, housing advocates ask that HUD and FHFA consider processes that favor nonprofits, either by giving them the chance to bid before big investment firms, or by establishing a system that gives credit to bidders with neighborhood stabilization programs.

#HedgeFunds

Hannah is currently a writer and student in Colorado Springs, pursuing her master's degree in Creative Writing at the University of Denver. Before becoming a Staff Writer for the American Genius, Hannah wrote website content and grant applications for a law office in central Minnesota.

Economics

Why it’s about to get more expensive to get a mortgage

(FINANCE) Borrowing money is getting more expensive, especially for those looking to get a mortgage. But why?

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bonds and mortgages

Although there have been some blips, bonds have grown substantially in value since the 1980s. They’ve performed extremely well for a number of reasons, not least of which is the big slowdown in inflation over that time period.

The result, for investors, has been that anything “bond-lik,e” i.e. capable of paying a regular income – like a high-dividend stock or even a property like your home – has shot up in value. A reversal of bond prices would mean less support for such investments.

That’s what the economy is currently experiencing. According to Financial Times, American worker wage growth is hastening the sell-off of bonds by the US government, which is decreasing the overall price of bonds. As bond prices go down, the interest rates that they offer new investors go up. That rate jumped to 2.85 percent last Friday, the highest level since 2014.

Since the rates at which banks lend their money are largely based on the interest rates offered by bonds, regular folks looking to take out a mortgage or a loan are facing higher costs.

How does this work?

If we’re talkin’ bond prices, we’re talkin’ yield. When the price of a bond goes up, the yield of that bond goes down! Let’s say you’re getting paid $5 each year. If you pay $50 for that right, then you’re making a 10% “yield” (5/50 = 10%). But if you pay $100 for that right, then you’re making a 5% “yield” (5/100 = 5%).

It’s the same thing with the price of a bond because the amount a bond investor gets paid (usually) is fixed. And so, when the bond goes up in value, the “yield” goes down – and vice versa.

For realtors, its important to help clients shop for the best rates to improve their confidence in this market. Leveraging the right online and local financing resources can help potential buyers get the best deal. Explaining broader market context is also critical. Historically, a three percent interest rate is still very low.

According to Investopedia, mortgage rates averaged 7.81% in 1996 and 10.19% in 1986. Instilling confidence with information will put buyers and sellers in the right place to make moves.

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Economics

How does this soft jobs report impact the housing market?

(REAL ESTATE NEWS) When we see a soft jobs report, does that hurt or help the housing market? We talk to two economists about it.

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In a year of political uncertainty, the release of any jobs report is polarizing. Political figures and armchair policy wonks will read into the data as they wish, but not housing economists.

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That’s who we look to in these times, because we all know that jobs is the cure-all for a recovering economy, but payroll growth slumped in September as the U.S. Labor Department reports that employers added only 156,000 jobs.

This fell short of the 172,000 originally projected by economists surveyed by Bloomberg.

Hidden positives in the report

Dr. Ralph McLaughlin, Chief Economist at Trulia said, “While the September jobs report came in below expectations, the continued addition of jobs to the US economy will help buoy demand for homes, both on the for-sale and rental side of the market.”

He observed another positive hidden in the Labor Department result. “In addition, wage growth kicked up again, which will help bolster the savings of first-time homebuyers trying to scrape together a downpayment.”

Real estate remains unchanged

“Given no major surprise in the data, the national outlook for real estate market remains essentially unchanged, with home sales expected to squeak out slight gains in 2016 and 2017 while commercial building vacancy rates should continue to fall,” said NAR Chief Economist, Dr. Lawrence Yun.

Yun adds that “we should note that men have been underperforming as 68.4% of adults have jobs, down from historic norm of around 75%. Meanwhile, 55.8% of women have jobs, roughly matching the historic norms.”

Pointing out that the data is being “digested” through the perspective of the upcoming election, Dr. Yun notes that, “among men, those with a college degree 72% of adults are working while only 54% of those with only a high school degree are working.”

Dr. Yun observes, “There will surely be a big divergent voting patterns among men versus women and among those with college education and those without in November.”

#jobsVhousing

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Economics

Mortgage companies hiring time travelers to uncover missing documents?

(MORTGAGE NEWS) – Mortgage companies are hiring for an interesting new position that may speak to their role in the economic crash of 2008.

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During the Great Recession of 2008, it’s been estimated that around seven million Americans lost their home. Many of the homes that went into foreclosure did so because people lost their jobs, and just gave up on their home. In some, people got kicked out based on false documentation, faulty paperwork or just downright illegal mortgage servicing. Numerous lawsuits have been filed and won by homeowners who were wrongfully evicted.

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In California, in Yvanova v. New Century Mortgage Corporation, the California Supreme Court ruled that plaintiffs held the right to contest foreclosures when documentation (in this case, a mortgage transfer that was allegedly void) was not handled correctly. The Court didn’t determine validity of the document in Yvanova’s case, just that she had the right to contest the foreclosure.

New jobs in mortgage documentation

According to David Dayen, who wrote Chain of Title, this phenomenon has brought new jobs to the market. Career Builder lists a job for a “Default Breach Specialist” posted by a recruiting firm in Jacksonville, Florida. The primary characteristics for this position:

“The Default Breach Specialist responsibilities include ensuring all breach letters are issued as required by investors, insurers and/or State Law.  Responsible for ordering title, reviewing title and all security documents to identify missing assignments needed to complete the chain of title prior to foreclosure referral.”

Seeking time travelers

According to Dayen, all the assignments of mortgage should have been prepared and recorded at the time of the sale or transfer. He questions why any mortgage company would need to order these documents.

In Yvanova’s case, it’s alleged that the mortgage was not converted into the trust in a legal fashion. In many of the cases involving foreclosure, third parties were hired to produce the paperwork that conveyed a mortgage into the trust. Dayen alleges that many of these companies “mocked up” documentation.

Although it is possible that the mortgage company is simply looking for someone to make sure everything is in the case file, it’s also possible (some would say highly likely) that some documents may never be found because they don’t exist.

The failure to follow the law as it pertains to property records is so bad that companies are now hiring chain of title specialists to manage the problem. This does not put the real estate industry in the best light.

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