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Wealth Makes Its Move

Dave Ransom  |  Issue: July | August 2012
Photo: Adrian Garcia
MADISON, WISCONSIN - Americans are becoming aware of the partnership between the banks.

‘The Top One Percent Is Buying Up All the Real Estate’

“The top one percent is buying up all the real estate,” a long-time Southern California realtor complained to the Los Angeles Times in March.

As a new wave of foreclosures picks up steam, billion-dollar investors are lining up to buy thousands of homes — with or without their recent owners in them.

In a sweet deal they have worked out with banks and the federal government, they will get those homes at a steep discount, then give them a once-over and rent them back to the same sort of people who were living in them in them before.

These investors expect to make money hand over fist on the deal — an average 8-percent annual profit from rents alone, at a time when 10-year Treasury bonds are paying less than 2 percent.

“Some of the biggest names on Wall Street are lining up to become landlords to cash-strapped Americans,” writes the Wall Street Journal.

After the $25-billion, slap-on-the-wrist settlement on their “robo” mortgage fraud, the big banks have been quick to rev up their foreclosure apparatus. They served papers on more than 100,000 homes in May alone.

And as foreclosed families get pushed out into the streets, almost two-thirds of them are renting single-family homes like the ones they used to own — sometimes the very same house.

Increasingly, they are renting — not from mom-and-pop landlords — but from the burgeoning corporate house-rental industry.

The San Francisco Bay Area’s Waypoint Homes, for instance — which calls itself “a next generation real-estate company” — holds title to more than a thousand homes. And it is attracting serious capital for buying several thousand more — $2 billion from Silicon Valley venture capitalists and real-estate investors.

Waypoint’ buys the mortgages of foreclosed homes at a steep discount, fixes them up, and rents them out for good deal less than the original mortgage payment.

That sounds good until you realize that, if the bank had offered the family the same deal, they could probably have avoided foreclosure entirely, would have money in their pockets — and would still own the house.

Another such company, Oakland-based McKinley Capital Partners, now owns hundreds of Bay Area homes, and they are buying “as many as they can possibly get their hands on,” says the man who manages their rentals.

McKinley’s backing comes from a $29-billion global investment conglomerate founded by a onetime investment banker at Goldman Sachs. McKinley head Gregor Watson told the business news service Bloomberg that large holdings of rental homes are becoming “a new asset class” for investors — ranking with stocks and bonds.

But buying people’s homes one by one from the banks who hold their mortgages is inefficient, says Watson. And he and much bigger corporate capitalists are awaiting the federal government’s oncoming better deal.

Indeed, they’ve helped make it happen. This spring, when the Obama administration announced its plan to sell foreclosed homes owned by the government’s housing agencies — Fannie Mae, Freddie Mac, and the FHA — they had already discussed the idea with the representatives of big capital.

And when the administration asked for public input on this Real-Estate-Owned (REO) Initiative, it began further consultation with banks like Barclays, Deutsche Bank, Wells Fargo, and UBS.

Also said to be interested are billionaire players such as Sam Zell, the biggest owner of apartments in the U.S., and one-time investment banker Leon Black, whose Apollo Investment Management owns such realtors as Coldwell Banker, Century 21, and Sotheby’s.

But the hedge funds and private equity firms — fancy names for the 1 percent pooling their money — are pushing one Obama to sweeten the pot. They want the administration to give them cheap financing and guarantee “real scale” in the lots they will be bidding on — as many as a thousand families’ homes.

And who holds the mortgages to these homes? In a certain sense, We, the People do — the 99 percent. Fannie Mae, Freddy Mac, and the FHA — all government-backed and tax-payer bailed out — hold half the country’s mortgages, dumped there by the banks.

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