Rental Securities Investments Reminiscent of Pre-Crash Practices

A recent report from Morningstar Inc. indicates that rent payments collected on the collateral for U.S. rental-home securities fell by nearly 8 percent over the course of just five months, ending in January. money5.jpg

Although industry analysts have speculated the market will eventually stabilize, the performance of these securities is being closely watched, as they so closely resemble the formula that sucked in so many unsuspecting investors prior to the 2008 housing market crash.

Our Miami foreclosure defense lawyers understand the parallels are so concerning, some legislators have called for increased industry oversight and regulation.

For example, U.S. Rep. Mark Takano, D-Calif., has called for Congressional hearings on the matter, saying the rise of investor-owned properties and single-family rental home-backed securities (particularly those by The Blackstone Group LP) and other private equity firms could have a profoundly negative impact on the market if unchecked.

It’s imperative, Takano said, to ensure we aren’t going down the same path with regard to sub-prime mortgage-backed security. If the industry gets to a point where it creates an unsustainable bubble, we will inevitably see another burst.

Over the past 24 months, private equity firms have been snapping up an unprecedented amount of real estate, effectively elbowing actual homeowners out of the housing market by paying for their offers in cash. It’s estimated that Wall Street investors have purchased more than 200,000 low-price, previously foreclosed homes in some of the cities hardest-hit by foreclosures (including Miami). Blackstone is the biggest, but there are several others.

Most of these purchases were made at foreclosure auctions, with many of the purchases made in bulk.

Blackstone’s cut alone is estimated to be worth somewhere around $7.5 billion.

Certainly, waiting for these homes to appreciate in value and then re-selling them is one way these firms hope to earn money. But in many cases, investors are looking to collect money now. Best way to do that? Rent. This is a fairly easy proposition when you figure you’ve got millions of people who were recently forced out of these same homes because they were underwater on the payments.

Recently, Blackstone bundled rental payments of some 3,200 single-family homes and then turned around to offer investors its mortgages on the properties as collateral. It’s very similar to a residential mortgage-backed security, and it’s become very popular among investors.

But there are plenty of analysts who have voiced concern about the whole concept of securitized mortgage debt backed by rental checks. Some economists point out that these investments are untested and potentially quite risky, especially because these kinds of developments in some markets have raised rental rates significantly.

In Charlotte, North Carolina, for example, the cost to rent a home has increased by a third, meaning more renters end up falling behind on their payments. Ten percent of current renters have eviction proceedings pending against them. That’s not good for investors, and it’s ultimately not good for the economy either.

Blackstone representatives have balked at the suggestion that they are pricing real-life buyers out of the market. Instead, they say, they are helping those who can’t get a mortgage. Although, it’s unclear how much these individuals are actually being helped when they can hardly afford to pay their rent.

If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Keeley for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Mortgage Wars,” discussing foreclosure topics that matter to YOU.

Additional Resources:
Mortgages bundled, again, Feb. 9, 2014, By Michel Corkery, Sarasota Herald Tribune
More Blog Entries:
Miami Foreclosure Recovery Not Nearly as Robust as Reported, Jan. 28, 2014, Miami Foreclosure Lawyer Blog