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Forum Post: Fiefdom in America - Land discounts for the wealthy today's WSJournal

Posted 2 years ago on March 19, 2012, 6:36 p.m. EST by elf3 (2959)
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By NICK TIMIRAOS, ROBBIE WHELAN and MATT PHILLIPS

Some of the biggest names on Wall Street are lining up to become landlords to cash-strapped Americans by bidding on pools of foreclosed properties being sold by Fannie Mae.

The idea is that the new owners would rent out the homes at first rather than reselling—potentially aiding a housing-market recovery by reducing the number of properties clogging the market. The fact that big-name investors are interested also suggests they anticipate sizable future profits in housing.

Fannie Mae's Foreclosure Announcement

See Fannie Mae's announcement about pools of foreclosed properties it is offering for sale.

View Document

More photos and interactive graphics Bulk sales, however, pose a trade-off. While the current approach of selling homes one-by-one has its own high costs and is sometimes inefficient, selling properties in bulk to large investors could require Fannie Mae to sell at a big discount, leading to larger initial costs. It is unclear which would be least costly ultimately to taxpayers, who are responsible for the big mortgage-finance company's losses.

Purely in dollar terms, the sale would be small by Wall Street standards. But it could offer clues about whether investors are willing to pay prices high enough to entice Fannie Mae—along with its sibling Freddie Mac, federal agencies and banks—to do more bulk-sale deals in the future.

Currently, banks selling through regular real-estate listings are getting more than 90 cents on the dollar of their asking price, according to industry analysts. They could be reluctant to unload properties in bulk if it means selling for much less.

Firms considering bids include Austin, Texas-based broker-dealer Amherst Securities Group and a fund run by mortgage-bond pioneer Lewis Ranieri. Hedge-fund manager Paulson & Co. and private-equity investors Colony Capital LLC are also considering bids, according to people familiar with the process.

The sale consists of 2,500 homes divided into eight regional pools, ranging from 572 properties in Atlanta to 99 in Chicago. The total current market value is $320 million, according to an offering document prepared by Credit Suisse, which is advising Fannie.

"We're investing a lot of capital, a lot of time, with the expectation that this is a very small beginning to a very big movement," said Sean Dobson, CEO of Amherst. Last summer the firm won 50 properties auctioned by Fannie in Dallas and confirmed that it plans to bid on some of the pools up for auction now.

Spokesmen for Fannie Mae and Credit Suisse declined to comment on the sale.

The deal with Fannie would require investors to rent the houses out and hold them off the market for several years.

Some prospective buyers are betting that the housing market will improve more quickly if big investors step in. "Some of these markets are very close to being stable, and this will accelerate that stabilization substantially," said Mr. Ranieri, the pioneer of mortgage bonds who is considering bidding on some Fannie parcels with local partners.

Throughout the housing downturn, Wall Street money has dabbled in foreclosed single-family homes. But until now, the number and size of deals have been small because buyers have demanded steep discounts. Fannie and Freddie have resisted because they say they are able to recover more money selling properties one at a time.

Enlarge Image

But over the past year, rents have risen as home prices—pressured by foreclosures—kept sliding. Investors have started buying up houses to offer as rental properties. And Fannie has a massive number of properties in the foreclosure process that, sooner or later, it needs to sell.

One reason investors are thinking about buying large numbers of single-family homes and renting them out: It promises a relatively high return compared with other investments right now.

Economists at Goldman Sachs estimate the annual yield on an investment on rental property nationwide averages about 6.3%, but can exceed 8% in cities that were hit hard during the housing bust, including Las Vegas, Detroit and Tampa. By contrast, mortgage bonds have average yields of just over 3%, and investment-grade corporate bonds are yielding about 3.5%, according the Barclays Capital U.S. Investment-Grade Index.

Warren Buffett, considered a sage investor and chief executive of Berkshire Hathaway Inc., said in an interview with CNBC-TV last month that he would buy up "a couple hundred thousand" single-family homes if he could do so easily, given the high yields on rental investments.

Fannie and Freddie, which hold around half of all foreclosed properties, had an inventory of 180,000 homes worth some $14.7 billion at estimated end-of-2011 market value.

Last year Fannie sold more than 240,000 homes, primarily one at time, to people looking for a home to live in or to small investors who would either rent or resell them.

The vast majority have been sold the traditional way—listed with local brokers. Small numbers get sold in bulk sales or auctions.

Fannie's testing of bulk sales is an effort to see whether it can attract a new type of buyer. Fannie could end up keeping a stake in the pools of properties.

Not everyone agrees that selling in bulk to big investors is the best option for the housing market. Some say it would be more helpful if Fannie and Freddie instead made loans more available to small local investors.

"A pretty robust cottage industry has developed and is absorbing this at an incredibly fast pace," said Richard Smith, chief executive of Realogy Corp., which owns the Coldwell Banker and Century 21 real-estate brands.

Some 800,000 former owner-occupied homes are being converted to rentals each year, according to estimates by Barclays Capital, a sizable figure considering that last year a total of 4.3 million previously owned homes changed hands.

It isn't clear whether Fannie will get better prices in bulk sales. During the fourth quarter, Freddie Mac reported that prices in a number of markets had stabilized on its foreclosed properties. "The bids are likely to be too low" on the bulk sales given investors' desire for high returns, said Ivy Zelman of housing-research firm Zelman & Associates. "Everyone would like this to happen, but from an economic perspective, they may not be better off this way, unless Fannie provides leverage."

So far, Fannie and Freddie have largely resisted bulk sales, arguing that bulk investors are offering prices that are too low compared with their retail sales. Last year, Fannie lost around 35 cents on every $1 of debt that went through foreclosure.

Some larger investors are circumspect about potential returns. Rialto Capital Management LLC, a unit of home-building company Lennar Corp. that invests in distressed debt, has rented out some of the 300 single-family homes it has acquired from buying distressed loans from the Federal Deposit Insurance Corp.

While Rialto is considering a bid on the Fannie properties, Lennar's chief executive, Stuart Miller, cautions that it is more difficult to get a "responsible return on capital" after accounting for the costs of renovating, managing and leasing the homes. "The challenge…is to be able to review each of the assets and properly assess all of the costs," he said.

Other large investors are partnering with local firms. American Residential Properties, a company based in Scottsdale, Ariz., that has bought close to 800 foreclosed homes over the past four years, is looking to team up with the likes of Mr. Ranieri. "There's a lot of people with a lot of money very interested in this, but you can't start from 10,000 feet," said Mr. Ranieri.

Fannie is requiring interested investors to go through an application process that will scrutinize both their capital backing and their property-management capability. "There's a political element to this," said John Burns, a home builder consultant in Irvine, Calif., that is advising several bidders. "You want to get the highest bid, but you definitely want somebody who's taking care of the tenant."

The deal being marketed consists primarily of already-rented single-family homes around the country, including in Florida, Arizona and Southern California.

Most of those units were leased to tenants when Fannie foreclosed on them and will be sold as occupied units.

They represent just 2% of the nearly 120,000 foreclosed properties that Fannie Mae held at the beginning of the year, and the company is likely to continue to sell the vast majority of its foreclosed properties through retail channels.

Bids are due by mid-April, according to the offering document prepared by Credit Suisse, and officials are looking to complete the first transactions by late May.

Write to Nick Timiraos at nick.timiraos@wsj.com and Matt Phillips at matt.phillips@wsj.com

23 Comments

23 Comments


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[-] 3 points by Shule (2237) 2 years ago

Get this one; we just refinanced our house, and before we closed the mortgage was already sold. The mortgage was sold four more times within two months after the closing before it ended up with Fannie Mae. Fannie Mae told us not to send the payments to them, but rather to a "service provider" which Fannie Mae hires. As a homeowner, I personally don't care, as it makes no difference to me as to whom I send the payments to, but as a taxpayer I am a bit concerned about having to help foot the bill for all the bilking.

[-] 2 points by elf3 (2959) 2 years ago

Fannie Mae and bank contracts are private and the tax payer is not privy to the deal. Whether you know it or not your home was predetermined by the bank to be sold to Fannie Mae (they must have qualified you under a Fannie Mae loan program without your knowledge) Very Very interesting - did they still require a full down, and PMI, and insurance inspection? So the tax payer is funding banks to sell to buyers with a program that does absolutely nothing but shift responsibility onto the tax payer? Fannie Mae is supposed to be a low down payment no PMI loan primarily for first time buyers ....but they apparently aren't doing what they are supposed to do. You got packaged as Fannie Mae but got none of the benefits of it - WOW??!!! This is fraud right out in the open. As a Fannie Mae buyer I was charged full down, and they tried to throw in PMI in closing despite the fact that my home value was higher than my cost- Fannie Mae was paying half of closing costs so the bank jacked them up to around $8000.00 (which didn't even include points)

Can I ask you a personal question - were you a first time buyer or what was the amount of time between your last home loan and this one?

Question to everyone - Are the banks selling non-qualifying Fannie Mae backed loans to Fannie Mae? There are FEDERAL rules and LAWS required to be followed for them to follow in order to be able to sell these loans to Fannie Mae? Is anyone investigating this?

[-] 1 points by Shule (2237) 2 years ago

Not sure of the details quite honestly, but this was a refinancing and not a first time home deal. We have done many, many house closings, and definately are not first timers. We did not do a full down, we do our own PMI, and got an extremely low interest rate. So from our standpoint got a real good deal which most people don't get. I don't think the bank we closed with knew our loan was going to Fannie Mae, (but maybe they did.) What is for sure somewhere between us and Fannie Mae something funny happened. The question remains, why does such a thing end up with Fannie Mae?

[-] 3 points by elf3 (2959) 2 years ago

Economists at Goldman Sachs estimate the annual yield on an investment on rental property nationwide averages about 6.3%, but can exceed 8% in cities that were hit hard during the housing bust, including Las Vegas, Detroit and Tampa. By contrast, mortgage bonds have average yields of just over 3%, and investment-grade corporate bonds are yielding about 3.5%, according the Barclays Capital U.S. Investment-Grade Index.

So much better for them to own your property than to let you own it - much higher return

[-] 2 points by Quark2 (109) 2 years ago

Wait till they see how hard it is to be landlord. The tenants destroy the apartments and skip out on rent. When evicted, the flats are trashed.

[-] 2 points by elf3 (2959) 2 years ago

Read this Wall street journal article - explains how the government is going to allow wall street to outbid young couples on Fannie Mae housing as they buy it in bulk discount and outbid you and then will be allowed to rent them out. People that buy Fannie Mae aren't allowed to sell or rent the property for 5 years after they bought why should investors get in on a tax payer subsidized first time homebuyer program ?? Inflated Rental Housing brought to you by Goldman Sachs and Capital One and your own taxes - what's in your credit suckas ? Let them eat Rent!!!!

[-] 2 points by beautifulworld (22254) 2 years ago

Great post! I could see this coming. Seems like a master plan by the wealthy, if you ask me. They will be the lords of the land, like in feudal times.

[-] 2 points by shadz66 (19985) 2 years ago

Re. 'Neo-Feudalism', am just drawing your knowledgeable attention to the following article and my own 'forum-post' on this matter :

a) “'Social Security is Broke — and Other Corporate Scare Tactics' ; For years, corporations have been peddling myths to rally us behind their interests. Here are three things everyone 'knows' and why they're wrong.", by Lisa Graves : http://www.informationclearinghouse.info/article30869.htm &

b) http://occupywallst.org/forum/real-estate-4-ransom-global-property-speculation-a/ .

fiat lux ...

[-] 3 points by beautifulworld (22254) 2 years ago

Thanks, shadz66.

Related in the sense of the madness of all of this is a good clip from MSNBC from yesterday that explores ALEC and the Koch Brother's involvement and push for the "Stand Your Ground" laws:

http://newblackman.blogspot.com/2012/03/nra-koch-brothers-and-stand-your-ground.html

In the end, this activity is all related. Also, new "mortgage to lease" programs are going to "allow" homeowners nearing foreclosure to turn their homes over to their banks and rent them back. Here's a link to an article about BofA's plan:

http://money.cnn.com/2012/03/23/real_estate/bofa-mortgages-foreclosures/index.htm

[-] 2 points by shadz66 (19985) 2 years ago

Thanx for these excellent links and points 'bw'. pax et lux ...

[-] -2 points by elf3 (2959) 2 years ago

yep - and though they already are to some degree it's about to enter the realm of bank bail-outs

[-] 1 points by RedSkyMorning (220) 2 years ago

Many have already pointed out this is completely unethical. I agree.

It's also stupid, government policy. You know because Goldman Sach's think its a good investment, first off. And if they were any good at what they did, we wouldn't keep having to bail them out. Goldman buys government property then takes the earnings from the government (tax-payers). So they get to screw you twice. Theoretically.

Unless household incomes don't rise, which there's no sign of that happening. Deflation in wages need to match deflation in housing. These easy money policies are just making things worse.

[-] 1 points by Nevada1 (4835) 2 years ago

Everyone needs to see this.

[-] 0 points by subiemats (-1) 2 years ago

More Cowbell! Drumcircles need more cowbell to solve thses problems!! Fuck president Bush!!!

[-] 0 points by rayl (1007) 2 years ago

you're a clever little monkey, aren't you!!!

[-] -2 points by elf3 (2959) 2 years ago

some of us understand the things we're fighting against and that's what you are really rattling against with such propaganda aren't you (afraid some of us actually read the wallstreet journal and wear business suits to work each day while working full time and understand legalese. When we start making sense to the middle class and speaking their language you know that you're in for a fight. Sorry to disappoint your stereotype. As their kids enter the workforce parents are horrified to learn there is nothing out there for their children who they thought they prepared so well for the world. They are beginning to question the status quo Stalin had propaganda too - I call on the American public to wake up to Wall Street and their corporate radio head propagandists

[-] -1 points by elf3 (2959) 2 years ago

Banks will be our landlords while denying us home ownership (all with a discount we could never dream of thanks to taxpayer generosity) so long American dream - this will put the final nail in the coffin

[-] -2 points by elf3 (2959) 2 years ago

Economists at Goldman Sachs estimate the annual yield on an investment on rental property nationwide averages about 6.3%, but can exceed 8% in cities that were hit hard during the housing bust, including Las Vegas, Detroit and Tampa. By contrast, mortgage bonds have average yields of just over 3%, and investment-grade corporate bonds are yielding about 3.5%, according the Barclays Capital U.S. Investment-Grade Index.

So much better for them to own your property than to let you own it - much higher return

[-] -2 points by elf3 (2959) 2 years ago

Welcome to the monkey house everyone - do you want to rent from Wal-mart or Jp Morgan - or the owner of your company. Or we could try to save our money and only pay half our months salary to rent by living in cages (like they do in China) Communism and Corporatism are just different shades of the same color... ishttp://i.cdn.turner.com/cnn/2012/images/01/05/cages/lg.04.jpg http://i.cdn.turner.com/cnn/2012/images/01/05/cages/lg.05.jpg http://i.cdn.turner.com/cnn/2012/images/01/05/cages/lg.07.jpg http://i.cdn.turner.com/cnn/2012/images/01/05/cages/lg.10.jpg http://i.cdn.turner.com/cnn/2012/images/01/05/cages/lg.11.jpg http://i.cdn.turner.com/cnn/2012/images/01/05/cages/lg.13.jpg http://i.cdn.turner.com/cnn/2012/images/01/05/cages/lg.15.jpg http://i.cdn.turner.com/cnn/2012/images/01/05/cages/lg.13.jpg http://i.cdn.turner.com/cnn/2012/images/01/05/cages/lg.01.jpg

[-] -2 points by elf3 (2959) 2 years ago

Rental rate in my area - $1200-1500 per month ...

Mortgage = $800-$1000 (including taxes of about $500 per month - so in actuality the mortgage for a $120,000 home is about $500.00 per month.)

[-] -2 points by elf3 (2959) 2 years ago

Truly despicable - a program that tax payers pay into to make housing available to new home buyers without PMI (something invented by banks) and a low down payment. But has anyone ever tried to qualify for a Fannie Mae loan? This program clearly is not for the citizenry. Fannie Mae is a private corporation so the borrower is not privy to the contract they have made with each individual bank (as I found out they all differ so you have no way of knowing what the terms should be to qualify). The bank still will not lend without a full down payment and still tries to require PMI - but yet still will not lend to you unless you are bundled under Fannie Mae even with stellar credit (now we know why). Aside from which you get 14 days before the investors are allowed to bid against you - after you make a bid, they hold open the bidding for 5 days. In the meantime the banks will not approve foreclosed properties for lending because they will not insure them so - it takes time to qualify, and then when your time is up a cash investor swoops in and outbids you. (FHA is just as bad). The investors don't need to qualify because they have cash and they don't have to worry about insurance. In the meantime Fannie Mae has purchased these properties with taxpayer money to keep them affordable for first time buyers only in actuality they're keeping them cheap for investors. FHA is working the same way. Then they turn them into rentals and charge the very people who are desperately trying to bid for them - exorbitant rents, thereby pushing an entire generation who was priced out of the housing market because their salaries have not kept up and due to the lack of jobs into renting and keeping prices and rental prices artificially high the best part is yur taxes are paying for it. - instead of let them eat cake it's become "LET THEM RENT". Taxpayers once again are paying for Wall Street to infiltrate the housing market and let the taxpayer pick up the tab. This is called a fiefdom - welcome to the new America - just another reality for generation fucked.

[-] 2 points by shadz66 (19985) 2 years ago

I am 'bumping' this very important 'forum-post' and drawing attention to the fact that 5 of elf3's comments above, were down-voted to -4 and thus collapsed.

Why ? - well like The BA$TARD BANK$TER$ - we can 'speculate' and ask ...

Cui Bono ? ...

[-] 1 points by Nevada1 (4835) 2 years ago

Agree. Bumping also. Presence of trolls gives validation to what elf3 is saying.