Los Angeles, March 17, 2013 - In recent months, real estate pundits have been saying that the housing markets are recovering. They point to increases in sales and home prices, as well as a decline in foreclosure filings, and predict that the worst of the foreclosure crisis is over.
The crisis may be almost over for the banks, but it is far from over for average people. Banks have completed foreclosure on approximately 3.9 million homes since September 2008, according to a Dec. 2012 report by CoreLogic. And 1.3 million homes, or 3.2% of all homes with a mortgage, were in some stage of the foreclosure process as of October, 2012. 1. Looking forward, there are another three million homes that are seriously delinquent and have yet to enter foreclosure. 2.
With so many homeowners losing or having lost their homes, what is causing the increase in sales and prices? A look at the business press reveals that the so-called recovery of the market is based more on the purchase of homes by investors than home ownership by American families, which is on the decline.
In a typical story about the housing “recovery” (California housing recovery may gain momentum, experts say), the Los Angeles Times reports that there are “record numbers of investors prowling for bargains.” According to the article, “Although prices may be gaining, the healthiest contributors to housing strength — employment gains and consumer confidence — appear to be playing less of a factor than investor activity and low mortgage interest rates.” 3.
What is meant by “investor activity” is that at least since 2012, wealthy investors have poured into the real estate market, buying up combined lots of foreclosed homes and either selling them for big profits or turning them into rentals. About 30% of foreclosed homes are being bought cash down. These include many foreign investors, according to one executive, who credits investor activity and an influx of offshore money for the “recovery.”
It may surprise some to learn that it was the Obama administration that came up with the foreclosure-to-rental scheme. In July 2011, it announced that it was soliciting ideas on how to turn the federal government’s inventory of foreclosed houses into rental properties that could be managed by private companies or sold in bulk. That plan came on line at the beginning of 2012, and it has attracted an influx of big investors to the housing market.
A March 20, 2012, Reuters article (The Wall Street gold rush in foreclosed homes) reported that the U.S. government was selling big pools of single-family homes that Fannie Mae owned in some of the hardest-hit housing markets. The article adds, “Investors seeking higher yields are drawn to foreclosures because the rental market is red hot.” 4.
The government’s and banks’ sales of foreclosed homes to big investors means that struggling homeowners can expect no help to stay in their homes, and this is documented by the steady decline in home ownership in this country—from its peak of 69% in 2004 to close to 65.4%. 5. If you count the three million who are seriously delinquent, that number would be lower, or around 63%. The “gains” we are seeing in the real estate market from these sales represents the loss of a home—and all of the time and money they put into it—for hundreds of thousands of families.
Another sign of the so-called housing recovery is the rise in the value of housing-related securities. Investors are buying up unrated junk bonds backed by non-performing loans (NPLs). A recent Reuters article (Bad US mortgage loans now big business on Wall Street) reports, “Delinquent and defaulting mortgage loans to struggling US borrowers have become big business on Wall Street, as investors scoop up bonds backed by non-performing loans.”
“With millions of borrowers still under water or facing foreclosure, real estate investment trusts (REITs) and others are snapping up NPLs at a discount, hoping to earn returns from their eventual resolution or liquidation.”
Reuters reports that not only banks, but government entities are unloading NPLs by bundling them into bonds. This includes Fannie Mae and Freddy Mac, the HUD, the FDIC and the FHA. 6.
The booming foreclosure-to-rental market is also driving up prices of these bonds, which, besides attracting short-term investors, are also attracting rental investors who see non-performing loans s as a new source of inexpensive homes to rent out.
"The REO-rental players have driven NPL prices up, because they view it as a good way to source product," said one source. "They are converting them to REOs." In other words, rental investors who are having trouble finding enough empty houses to rent out are buying the loans of struggling homeowners and pushing for their eviction. Carrington Mortgage and Wells Fargo are two companies that have been heavily involved in the NPL securitization market. 7.
Not surprisingly, the Federal Reserve has been taking measures behind the scenes to pump up the housing market. TIME reported on Dec. 7, 2012, that besides keeping interest rates at near-zero since 2008, the Fed has engaged in quantitative easing (QE), or the purchase of U.S. treasury bonds and mortgage debt.
“The most recent round of QE was specifically aimed at mortgage-backed securities (MBS), and was effective at lowering mortgage rates to all-time lows,” the article states. In fact, one expert cited by TIME believes that “most — if not all — of the recent rise in home prices is a direct result of efforts by the Federal Reserve to stimulate the economy” (Is the Housing Recovery Just an Illusion Created by the Federal Reserve). 8.
There is still more evidence that the so-called housing recovery is just speculation and profit making by the rich at the expense of working people. First, sales of high-priced homes are soaring while sales of lower-priced homes have fallen. This is not because of a lack of demand, but because these homes are being snapped up by investors looking for rental units. Rick Sharga, of Carrington Mortgage, admits that, “the biggest headwind for the housing market is the inability of the average consumer to get a loan.”
At the same time, vacancy rates for both homes and apartments are going down as former homeowners, a group we never heard about in the past, become renters. 9. As groups fighting foreclosure fraud have been saying for some time, the banks want to turn us into a nation of renters. 10.
The analysis that has been sorely missing from this story should be obvious. If unemployment and underemployment continue to be high, and the government and the courts continue to look the other way while banks steal people’s homes and sell them to investors, then home ownership will cease to be accessible to ever greater numbers of working people. There is no such thing as a recovery that leaves the majority of the population poorer and less secure, yet that is the story the financial pundits want us to believe.
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