Learn How Wall Street and Cash Investors Are Outbidding First Time Homebuyers, Displacing Tenants, and Changing Local Communities  

Bloomberg Picture of REO

Cropped version of Bloomberg News graphic of REO to Rental. See the full picture here: http://www.bloomberg.com/infographics/2013-12-20/blackstones-big-bet-on-rental-homes.html

Have you been following the news about the approximately 200,000 homes that Wall Street investors have purchased to create portfolios and then securitized the income and sell bonds?  Does that sound alarmingly familiar to the “create portfolios of mortgages and securitize the payments and sell bonds” profit scheme that brought our economy to its knees?  Are you also worried about the impact this is having on communities?

If so, tune into The Power is Now show on September 23rd at 8:30AM to hear host Eric Lawrence Frazier, MBA as he discusses this issue with two experts.  Click on this link to hear the show and join the conversation.

Maeve Elise Brown is the executive director of Housing and Economic Rights Advocates (HERA), a nonprofit law firm in Oakland, California.  Kevin Stein, associate director of the California Reinvestment Coalition, a nonprofit coalition that advocates for better access to banks.

They will discuss how all-cash investors have elbowed first-time homebuyers out of the market, displaced long-term tenants, and changed the fabric of local communities.

If you’re interested in learning more about this problem and what possible solutions are, check out the resources below.  The letter below was drafted by Maeve Elise Brown at HERA and Kevin Stein at CRC, with input from other allies and CRC members.  The letter outlines the problems created by the REO to Rental scheme, how the government is exacerbating the problem through mass sell-off’s of delinquent mortgages to investors, and how the problem could be addressed by regulators and policymakers.

80 Organizations Ask Federal Gvt. to Address Investor Cash Flooding Into Neighborhoods

Regulators Should Act Now to Protect First-Time Homebuyers, Renters, and Communities

March 4, 2014-California: Eighty organizations are calling on federal regulators to address first-time homebuyers being outbid, tenants being displaced, and neighborhoods undergoing dramatic changes as private equity and investor cash continues flooding into local housing markets, buying up homes. These problems have been worsened by banks withholding REOs from the market and federal housing agencies conducting bulk sales of foreclosed homes and distressed mortgages. One portfolio of single-family rental homes was securitized this fall, though both Fitch Ratings and Standard and Poor’s refused to grant AAA ratings to the securitization, citing numerous uncertainties with this new business model.  Read the rest of the press release here.

 Some more recent press coverage you might be interested in:

Another Shadow in Ferguson as Outside Firms Buy and Rent Out Distressed Homes (NYT: Sept. 3, 2014)

Federal Program Helps Keep Some Delinquent Borrowers in Their Homes (NYT: Sept. 2, 2014)

And press coverage about the letter signed by 80 organizations, urging regulators to act now:

 

Game of Homes The letter sent by 80 organizations expressing concerns about issues with private equity landlords is cited.  Rebecca Burns, Michael Donley, and Carmilla Manzanet. In These Times. March 31, 2014.

Single-family rental home giants form trade group in Washington The letter sent by 80 organizations to federal regulators, including HUD, SEC, CFPB, OCC, Federal Reserve, and FHFA about issues created by private equity and other investors is cited. Tim Logan. Los Angeles Times. March 26, 2014.

Consumer groups seek bond oversight The letter sent to 80 regulators about single family homes being purchased by private equity firms and other investors is cited. Yahoo Finance Australia. March 24, 2014.

Blackstone’s Home Buying Binge Ends as Prices Surge: Mortgages The letter signed by 80 organizations expressing concerns to national housing and bank regulators is cited. John Gittelsohn and Heather Perlberg. Bloomberg. March 14, 2014.

Ninja loans reborn in similar form The concerns outlined by 80 organizations about private equity and investor landlords is cited in this article.  Kevin Stein from the California Reinvestment Coalition is interviewed, as is Maeve Elise Brown, from Housing and Economic Rights Advocates.  Radio New Zealand News. March 10, 2014.

Could a Wall Street firm be your landlord? The letter sent by 80 nonprofit organizations to federal regulators is cited on a show that also includes an interview with Representative Mark Takano about his concerns with the REO to rental model.  A new report from the Center for American Progress about rental securitizatoin is also featured. Ari Melber. The Melissa Harris-Perry Show. March 9, 2014.

First-Time Buyers Being Shut Out In Growing Numbers First-time homebuyers are prevented from purchasing homes when they are forced to compete with all-cash investors. The letter from 80 organizations to the SEC, HUD, CFPB, Federal Reserve, OCC, and FHFA is cited. Mike Wheatley. RealtyBizNews. March 7, 2014.

Want to buy a foreclosure? You may have to compete with a hedge fund Maeve Elise Brown, Executive Director at Housing and Economic Rights Advocates (HERA), outlines the concerns housing advocates have with private equity groups and other investors purchasing large numbers of single family homes.  Brown cites a letter sent by 80 organizations to federal regulators, asking for their assistance in addressing the impacts on tenants, homeowners, and communities. Mark Huffman. ConsumerAffairs. March 6, 2014.

Shut Out of the Housing Market? First-Timers Dwindle The letter sent by 80 organizations to federal regulators is cited. RealtorMag. March 6, 2014.

REAL ESTATE: Where are the boomerang buyers? A letter that 80 organizations sent to the SEC, HUD, CFPB, Federal Reserve, OCC, and FHFA is cited.  The letter calls on regulators to address the impact of private equity firms and other investors flooding into local housing markets and buying up homes. Debra Gruszecki. The Press-Enterprise. March 5, 2014.

Housing Activists: Rental-Property Bonds Might Herald Next Housing Bust The letter outlining concerns by 80 organizations about investor and private equity money pushing out first-time homebuyers, displacing long-term tenants, and changing communities is cited. Dan Weil.MoneyNews. March 5, 2014.

Regulate Wall Street home buying, consumers plead Eighty organizations signed onto a letter, expressing concerns about the impact on first-time homebuyers, long-term tenants, and communities as private equity and investors purchases large numbers of homes with the intention of securitizing the rents from these single family homes. Kim Miller. The Palm Beach Post. March 5, 2014.

78 Groups Urge Scrutiny of Wall Street Cash in Local Housing Markets The letter sent by the California Reinvestment Coalition, Housing and Economic Rights Advocates, and 78 other organizations is cited at approximately 14.25 into the program. Amy Goodman. Democracy Now. March 4, 2014.

California advocates want to put the brakes on REO-to-rental A letter sent by 80 organizations to the SEC, HUD, CFPB, Federal Reserve, OCC, and FHFA outlining concerns about private equity groups and investors buying up homes is cited, as are specific concerns and recommendations to the regulators. Trey Garrison. HousingWire. March 4, 2014.

Wall Street Has Found Its Latest Dangerous Financial Product, Activists Warn A letter sent by the California Reinvestment Coalition, Housing and Economic Rights Advocates, and 78 other organizations is cited.  In the letter, the nonprofit organizations ask federal regulators for help with investor and private equity cash pushing out first-time homebuyers, displacing long-term tenants, and changing communities. Benjamin Hallman and Jillian Berman.HuffingtonPost Business. March 4, 2014.

 

New Study Finds Banks Maintain Foreclosed Homes Worse in Communities of Color

Oakland Picture

A bank-owned home in Oakland that was photographed as part of new study.

Fair Housing of Marin (FHOM), the National Fair Housing Alliance (NFHA), and 16 fair housing centers released a report earlier this week detailing racial disparities in maintenance of bank-owned and Fannie Mae-owned foreclosures in 30 metro areas nationwide. FHOM investigated the Vallejo area and FHOM and NFHA investigated the Richmond and Oakland areas.

The investigations took into account over 30 different aspects of the maintenance and marketing of each property. REOs in communities of color were 2.6 times more likely to have 10 or more deficiencies than REOs in White neighborhoods (32.0% vs. 12.4%).

In the areas that FHOM investigated, REOs in communities of color were

  • 2 to 3 times more likely to have trash accumulated on the premises than REOs in White neighborhoods;
  • about 2.5 times more likely to have unsecured, broken, or boarded windows or have a trespassing or warning sign than REOs in White neighborhoods;
  • about 2.5 times more likely to have a trespassing or warning sign versus REOs in White communities.

To read the full press release about the report and its troubling findings, visit the Fair Housing of Marin website: Investigations of Bank-Owned Properties Uncovers Discrimination

To read the full report, visit this link: http://bit.ly/reo2014

 

 

New Resource for Widowed Homeowners Facing Foreclosure

2016  Update: New legislation introduced by Mark Leno and Cathleen Galgiani provides critical protections for widowed spouses and other survivors who assume home ownership responsibilities when the primary mortgage holder passes away. The Homeowner Survivor Bill of Rights, (Senate Bill 1150) closes a loophole in California law that fails to provide surviving spouses and children important protections against foreclosure that are available to other homeowners.  

Visit www.survivorbillofrights.org to learn more about this important new bill.

Last week, the California Reinvestment Coalition released our 10th Survey of housing counselors and legal aid lawyers to measure how well banks and mortgage servicers are helping homeowners who request assistance in avoiding foreclosure.

As part of the survey, 11 homeowner stories and declarations were also included in the report from homeowners who had worked with attorneys at Housing and Economic Rights Advocates.  Even working with attorneys, homeowners still faced unreasonable delays, requests for the same paperwork on multiple occasions, incorrect loan modification denials, wrong information about investors, and more.

While there were a number of troubling trends in the report, 87% of respondents said they felt that the “widows and orphans” problem still exists, despite federal guidelines released by various agencies in 2013.  The “widows and orphans” problem refers to the fact that many widows, orphans, and others who inherit or have an ownership interest in property have faced foreclosure upon the death of a loved one because they were not listed on the loan, and the servicer would not work with them so that they could keep the family home.

While the CFPB, Fannie Mae, Freddie Mac, and Treasury Department released updated guidelines in 2013, (see the full report for citations) housing counselors report that mortgage servicing staff aren’t always aware of the rules.

To shed further light on this issues, Housing and Economic Rights Advocates (HERA) has created an email address.  For widowed homeowners, or other heirs in similar situations, they can contact HERA via email at: familyhome@heraca.org.  HERA staff will make contact with each person that submits a story to that email address.

July 8, 2014 update: The CFPB issued additional guidance today to banks and mortgage servicers about working with widows and other heirs who are trying to keep their family homes.  You can read it here: CFPB Clarifies Mortgage Lending Rules to Assist Surviving Family Members

A few media stories illustrate the very human impact of bank and mortgage servicer red tape on surviving family members:

1)     Bank might foreclose on home because late husband isn’t residing there

“WASHINGTON — Billions of dollars in foreclosure settlements between big banks and government regulators haven’t helped Laura Biggs. The California woman is scheduled to lose her home nine days before Christmas because her mortgage company concluded that the house is no longer the primary residence of her husband, who’s been dead since 2003.”   Read complete story here: “Bank might foreclose on home because late husband isn’t residing there” (Kevin Hall, McClatchy Washington Bureau, December 9, 2013).

2)     Mortgage Catch Pushes Widows Into Foreclosure

“Ms. Bates, 70, is caught in a foreclosure trap that is ensnaring widows across America: she cannot get help lowering her payments until her name is added to the mortgage note, but the lender says she must be current on payments before that can happen.”  Read complete story here: Mortgage Catch Pushes Widows Into Foreclosure (Jessica Silver-Greenberg, New York Times, 12/1/2012)

3)     Call Kurtis Investigates: Surviving Family Members Losing Homes Left By Loved Ones

“ELK GROVE (CBS13) —The mortgage was in her late husband George’s name. The decorated war veteran died in 2007.  Daughter, April, says she sent Green Tree his death certificate and the grant deed with her mother’s name on it, but says Green Tree will not work with them.”  Read complete story here:  Call Kurtis Investigates: Surviving Family Members Losing Homes Left By Loved Ones (CBS Sacramento, 11/1/2013)

 

80 Organizations Call on Federal Government to Address Private Equity and Investor Landlords

Earlier this week, eighty organizations called on federal regulators to address a flood of cash from private equity groups and other investors.  The advocates are concerned about first-time homebuyers being pushed out of the housing market, long-term tenants being displaced, and communities being changed. The letter below was sent to the Consumer Financial Protection Bureau, the Securities and Exchange Commission, the Federal Housing Finance Agency, the Department of Housing and Urban Development, and the Office of the Comptroller of the Currency.

RE: Need for immediate federal intervention to mitigate the harmful impacts on local communities of investor purchases of REOs and distressed loans, and to stave off the next financial crisis

Dear Comptroller Curry, Chair Yellen, Director Cordray, Director Watt, Chair White, and Secretary Donovan:

This letter is sent on behalf of the undersigned organizations concerning a serious and still growing problem – the creation of another housing bubble, the displacement of tenant and homeowner households, and the destabilization of neighborhoods as a result of failed and negligent federal policies. Such policies and inaction have enabled Wall Street and other cash investors to outbid first time homebuyers, displace tenants, and alter the fabric of local communities.

We are concerned that families and communities will continue to suffer. In Riverside County, one-third of renters are forced to pay more than half of their income in rent, and there is an increase in poor upkeep and a lack of responsiveness by investor landlords to their tenants.[1] In Los Angeles, housing prices are rising but homeownership is declining as first-time homebuyers are priced out of the market.[2] In East Palo Alto, one company controls approximately half of the rental housing stock. And in Oakland, neighborhoods are losing long term residents who are displaced by foreclosures and tenant evictions amidst the frenzy as investors seek to gobble up properties.

At the same time, we are poised to experience another crisis if federal regulators fail to recognize and take corrective action to address red flags that are all too familiar: inflated housing prices, the explosion of securitized housing payments, undue challenges facing homeowners unable to secure the lowest priced loan product for which they qualify, and actions of GSEs that are more focused on profit motive than serving their affordable housing mission.

What follows is a short description of the problems we are seeing, followed by a set of recommendations for policy changes and other assistance to begin to address this crisis.

Making Neighborhoods Worse- Preference for Cash Investors and Bulk Sales of REO and Distressed Mortgages

Banks and other home sellers have demonstrated a preference for cash investors that is locking families out of homeownership. Nationally, cash deals made up 32% to 42.1% of home sales in December 2013.[3]  The failure of banks and investor owners of REOs to properly maintain and repair housing units means that many properties for sale in low income communities and communities of color are too distressed to pass FHA or other property inspections. Bank and investor neglect make these properties unavailable to FHA and other loan borrowers, unfairly closing the market to everybody except cash investors. This has a clear disproportionate impact on protected classes that rely on FHA and other loan products to attain homeownership.

Meanwhile, Fannie Mae and Freddie Mac have engaged in bulk sales of their distressed assets, which can harm neighborhoods without adequate protections in place. The Federal Housing Finance Agency implemented a pilot project in 2012 to address REO disposition, and, in its first transaction, approximately 2500 single-family Fannie Mae REO properties were offered to investors for sale. Many of the properties had tenants. We were, and continue to be, concerned about bidder qualifications and subsequent maintenance by these investor landlords. Furthermore, there has been no transparency regarding the outcome of these deals. And while we applaud the newly introduced Fannie Incentives program for REO purchase by potential owner occupants, we are concerned it will be no more effective than existing “first look” policies which have failed to significantly expand homeownership opportunities for first time homebuyers and others who wish to live in the homes they purchase.

Though the GSEs as conservatees have an obligation to exercise fiscal due diligence, they also have a mission to serve low and moderate income communities, with a particular eye to the needs of vulnerable communities of color.  Mass sell-off of properties to investors does not meet that mission or fair housing obligation.

FHA is also engaging in sell-offs under its Distressed Asset Stabilization Program (DASP). We are concerned that homeowners have been dropped out of the protections of FHA loss mitigation.  Attorneys at HERA have served clients who were not given proper access to required FHA loss mitigation options before being moved into DASP.  By not making sure servicers have engaged in proper loss mitigation, FHA has left its borrowers open to abuses that result in displacement.  As currently designed, FHA bulk sales may, in fact, be more likely to lead to foreclosure, not household or neighborhood stabilization. Though foreclosure sale of these properties is delayed by agreement with HUD for six months following transfer through DASP, specific loss mitigation protocols are not specified by HUD for the subsequent servicer.  Perhaps in response to congressional pressure, FHA has prioritized removal of distressed assets from its portfolio rather than taking the time to make sure servicers are respecting loss mitigation protocols.

Continuing REO bulk sales under current economic conditions ultimately amounts to market interventions that make investor predation a federally‐sponsored event. This repeat offense of looting the most vulnerable communities of our nation dangerously functions to widen race and class inequalities in future years, calling into question the federal commitment to furthering fair housing.  A rationale for bulk sales was to stabilize the market. But now, with prices rising and institutional and smaller investors pouncing on distressed properties and loans, the market no longer needs stabilization. It is our neighborhoods that need stabilization.

The New Housing Bubble- Artificial Inflation of Home Prices

Mortgage servicers and investors have withheld REO inventory from the market to ensure demand exceeds supply and to artificially drive up prices for prospective homebuyers.[4]  The problems with this form of market manipulation are several. Homebuyers who want to live in the property as their primary residence are under water as soon as they sign on the dotted line to buy the home, as the valuation of the home is based on an artificially inflated valuation of the property. This is akin to the pre-crash inflated appraisal problem, with the same effect of putting homeowners into homes that were immediately worth less than what they owed, trapping them until their home value actually rises. Additionally, the withholding of REO inventory has rapidly driven up rental prices to a level that is unaffordable to low and moderate income households and has increased over-crowding. Foreclosed-on homeowners have become renters, increasing demand on the rental side, while renters have been artificially prevented from freeing up rental stock by becoming homeowners due to the withholding of REO stock. In other words, the crush of former homeowners entering the rental market, without renters having the chance to successfully enter the homeownership market, exacerbates the demand for a limited supply of housing for renters. The Bay Area has experienced a supposed rise in equity that is remarkable, to say the least.[5] The artificial increase in rental prices has also come as a result of the preference of servicers/investors for cash and bulk buyers, and new forms of Wall Street financing that facilitate this model, discussed further below.

Wall-Street Backed Investment in Rentals and Rent Securitization: Impacts on Tenants and Communities

A new kind of landlord is buying properties in bulk—hedge funds, private equity firms and other companies that have not been in the rental business for very long, do not have an interest in abiding by their legal duties as landlords, and do not calculate any incentive to being good  landlords. These investor groups have a focus on turning a dollar, but have no connection to the community in which they are investing.[6]  The continued transfer of capital to investors via REO bulk sales now facilitates the creation of a new rental securitization market that benefits the very industry that caused the subprime loan crisis. And the market is growing to an estimated trillion dollars.[7] Though Fitch has indicated that it will review the quality of management of assets in real estate secured pools as part of its ratings assessment, it is not clear what type of assessment it will undertake, what effect it will have on management of properties, or whether it will be more accurate than the AAA ratings given to subprime securities just before the financial collapse.[8]  We expect that it will not include an assessment of the type of market control over rental prices that a very large scale player can exercise when it or a handful of investors own a sufficient portion of the rental market in a given area.

Examples of problems that have arisen already that are of concern to us include reports of hedge funds refusing to accept Section 8 vouchers for renters,[9] the ability of hedge funds to manage the collection of rental payments correctly,[10] and raising rents then moving to quickly evict.[11]

The significant size of the market makes careful government oversight absolutely essential to the safety and stability of communities. “Today more than 13 million households are renting single-family homes and single family rentals outnumber apartments.”[12] Indeed, the REO-to-rental product could grow to a $15 to $20 billion market, according to Moody’s Investors Service.[13] This bold new securitization of housing payments sounds eerily like the securitization of subprime loans which led to the financial crisis. The Federal Reserve Board has raised questions about this new process.[14] Republican Senator Johanns during the Janet Yellen confirmation hearing also raised questions.[15] Congressman Mark Takano recently wrote the House Financial Services Committee, calling for hearings and raising concerns about the securitization of rents and the harmful impacts it is having on communities in the Inland Empire.[16]We join Representative Takano in calling for hearings to examine the dangers and impacts of securitization of rental income.

And yet the problems are not confined only to the largest investor groups. Tenants Together reports receiving hundreds of complaints from California renters regarding problematic investors of various sizes. Investor landlords act without regard to tenant protections found in the federal Protecting Tenants in Foreclosure Act, our state Homeowner Bill of Rights, and local rent control and just cause for eviction ordinances. There is little to no oversight of investor landlords, and little to no enforcement of federal, state and local laws designed to protect renters from the widespread violations which exist today.

Tightened Lending: Not Making Loans Available to Qualified Homebuyers

Homeowners with excellent credit scores are not getting access to properties to buy.  Not only are they frozen out of purchase because of the withholding of REOs, but they are finding lenders unwilling to close on loans they have been approved for.[17] This phenomenon is not new, or a response to new qualified mortgage rules, but appears to represent an on-going reluctance of industry as a whole to make reasonably priced mortgage loans to qualified households. But the new mortgage rules do appear to be providing the industry another excuse for its failure to make credit available to qualified borrowers in low income communities and communities of color.

A further concern is that borrowers who qualify for conventional loans are being steered into costlier FHA loans. While FHA lending is an important source of credit for many borrowers, it should not be a vehicle to charge borrowers more than is appropriate based on their credit profiles.  This is not a theoretical concern; one of the nation’s largest banks, quietly mailed refund checks to customers for improperly steering up to 10,000 of its customers into FHA loans when they may have qualified for lower cost conventional loans.  Customers had to release the Bank from liability in order to cash these checks.[18] Such steering of conventional borrowers into FHA no doubt has a disproportionate impact on borrowers of color who are more likely to be represented among FHA borrowers.

Conversely, there is still a bias against FHA loan products. Home sellers and their real estate professionals should not be permitted to advertise “no FHA” or otherwise fail to consider purchase offers where the borrower is using an FHA loan product.

Conclusion

We respectfully request that your agencies respond immediately and issue any necessary guidance or rules and enforce existing fair housing and other laws so that consumers are better protected in this new landscape as communities struggle to revive themselves from the pain of the foreclosure crisis.

Specifically, we urge that you:

Keep families in their homes.

  • FHA and FHFA must ensure that FHA and GSE loss mitigation and loan modification rules are followed.
  • FHFA must develop more flexible policies to ensure that the GSEs participate fully in all state Hardest Hit Fund program, including by overturning policies that attempt to require “arm’s length transactions,” and instead to allow states to favor nonprofit CDFIs and other programs that seek to keep distressed homeowners in their homes through use of principal reduction modifications or resale to underwater homeowners at current market value.
  • CFPB, FHFA and bank regulators should scrutinize the servicing practices of companies that may have an incentive to improperly foreclosure on borrowers in order to funnel properties to affiliated REO to Rental businesses.

End bulk sales lacking adequate safeguards.

  • Bulk sales of FHA loans should cease unless loan sales clearly carry FHA loss mitigation requirements and give preference to non-profits that have written commitments to keep existing homeowners and tenants in place.
  • FHFA should investigate and provide public data on the impact of the bulk sale program on neighborhoods where bulk sale properties are located. This analysis should consider potential negative fair housing effects of bulk sales programs (e.g. resegregation of communities, locking protected classes out of the homeownership market, etc.).
  • HUD and FHFA should release data to the public on the outcomes of bulk sales programs, the purchasers, the deal terms, and neighborhood effects after these sales.
  • Bank regulators should likewise prevent banks from engaging in bulk sales of loan products and REO properties without regard to neighborhood impacts. Banks should be incentivized to sell any distressed loan pools and REO properties to nonprofit groups that are mission driven to preserve homeownership and promote community stability.

Promote homeownership.

  • FHFA must develop policies for Fannie and Freddie REO properties to prioritize sales to owner occupants or nonprofit organizations.
  • HUD should update the FHA 203K program so that the product can be a viable option that allows borrowers to bid on the large number of properties that require substantial repair.
  • Bank regulators should ensure that bank REO policies that may favor sales to cash investors do not have a disparate impact on protected classes, and instead should favor REO sales to owner occupants.

Protect tenant rights and promote family stability.

  • FHFA, Fannie and Freddie must ensure that the anti-eviction and habitability rights of tenants living in GSE REO properties are respected by all GSE servicers and agents.
  • FHFA, Fannie and Freddie should offer 2-year leases to all tenants living in GSE properties that become REOs.
  • CFPB must fill the regulatory gap that exists and enforce the PTFA as to all bank and investor landlords, and all regulators must ensure the entities they regulate follow federal, state and local tenant protections to slow the tide of foreclosure-related unlawful tenant evictions.  Regulators should require regulated entities to document what happened to the occupants of the properties after foreclosure.
  • All regulators must consider how to protect tenants from the same profit making squeeze that lead to unethical and illegal treatment by so many different actors in the mortgage market, from brokers up through executive staff of banks and investment houses.  To that end, securitization of income stream should be permitted only if there is full transparency and there are reasonable restrictions on rent increases, so that renters are not displaced by investors who are focused on profit. We suggest that a 1% increase in rent per year (if permitted by local rent control law), with a cap at 5% in any 10 year time period be the maximum permitted.  Many of the properties acquired by investors for rental are in low and moderate income communities and communities of color, so unreasonable rent hikes will have a disparate impact on these communities.

Honor fair housing principles.

  • DOJ and HUD must investigate the disparate impact on neighborhoods of various practices, including:
  • Whether protected classes of borrowers and neighborhoods are receiving equal access to loss mitigation and loan modification relief (borrowers of color, widows and orphans, disabled borrowers). A recent GAO report has raised the question of whether Limited English Proficient homeowners have received the same level of service by servicers under the HAMP program.
  • The failure to maintain and market properties so that properties for sale will pass property inspections and allow borrowers to compete with cash investors.
  • Industry players and private sellers discriminating against FHA borrowers by failing to accept FHA offers, which has a clear disparate impact on protected classes.
  • The manipulation of shadow inventory by banks and others that artificially inflates housing prices.
  • When investors in properties have achieved the scale of being major players in the rental market or have achieved such a scale in a given community that there is reason to impose more oversight on their activity.

Promote transparency.

  • SEC and other regulators must ensure there is transparency and appropriate ratings of rental income securitizations to ensure that unsuspecting investors do not unwittingly finance the next financial and housing crisis.

Time is of the essence before we witness further, unnecessary displacement of families and destabilization of communities. After the last crisis, regulators were asked what they had done to prevent the abuses that led to widespread foreclosures, evictions, and community upheaval. The answers provided, and the action taken, were not adequate. We are hopeful that we will not repeat the mistakes of the past.

Should you have any questions about this letter, or wish to discuss these issues further, please contact Maeve Elise Brown of HERA at (510) 271-8443 ext. 307, or Kevin Stein of CRC at (415) 864-3980.

Thank you very much for your attention to these issues and concerns. We have no time to waste in ensuring that neighborhoods are not further destabilized.

Very Truly Yours,

A Community of Friends

Able Works

Action for the Common Good

Advocates for Neighbors, Inc.

Affordable Housing Services, Inc.

Alliance of Californians for Community Empowerment (ACCE)

Asian Inc.

Asian Pacific Policy & Planning Council (A3PCON)

Associated Realtist Property Brokers, Inc., a NAREB local chapter in Oakland, CA

Bet Tzedek Legal Services

California Capital Financial Development Corporation

California Coalition for Rural Housing

California Reinvestment Coalition

California Resources and Training (CARAT)

Causa Justa:Just Cause

Center for Popular Democracy

CHISPA

City Heights Community Development Corporation

Civic Center Barrio Housing Corporation

Community Action Human Resources Agency (Eloy, Arizona)

Community Housing Council of Fresno

Community Housing Development Corporation

Community HousingWorks

Consumer Action

Consumer Credit Counseling Services of Orange County

Consumer Credit Counseling Services of San Francisco

Courage Campaign

East Bay Housing Organizations

East Los Angeles Community Corporation

Fair Housing Law Project, Law Foundation of Silicon Valley

Fair Housing Napa Valley

Fair Housing of Marin

Fair Housing Council of San Diego

Fair Housing Council of the San Fernando Valley

Greenlining Institute

Hacienda CDC (Portland, Oregon)

Hello Housing

Home Defenders League

HomeownershipSF

Housing California

Housing and Economic Rights Advocates

Housing Opportunities of Northern DE, Inc.

Inland Fair Housing and Mediation Board

ISAIAH

Massachusetts Communities Action Network

Multicultural Real Estate Alliance for Urban Change

National Asian American Coalition

National Community Reinvestment Coalition

National Consumer Law Center (on behalf of its low-income clients)

National Housing Law Project

National People’s Action

Neighborhood Housing Services of Greater Cleveland (Ohio)

Neighborhood Housing Services of the Inland Empire

Neighborhood Housing Services of Silicon Valley

NeighborWorks Sacramento Region

New Economy Project

NID-HCA

Northbay Family Homes

Northern Circle Indian Housing Authority

Novadebt

NPHS, Inc.

Orange County Community Housing Corporation

People’s Self Help Housing

PICO National Network

Project LIFT (Houston, Texas)

Public Counsel

Renaissance Entrepreneurship Center

Residential Resources, Inc. (Nashville, Tennessee)

Right to the City Alliance

Rural Communities Assistance Corporation

Sacramento Foreclosure Action Team

Self-Help Enterprises

Shalom Center for T.R.E.E. of Life

Suburban Alternatives Land Trust

Tenants Together

Thai CDC

Unity Council

Vermont Slauson Economic Development Corporation

Ward Economic Development Corporation

Western Center on Law and Poverty


[1] See “Rep. Takano Calls for Congressional Hearings into Rental Backed Securities,” press release and report, January 23, 2014.

[2] See Laura Gottesdiener, “The Empire Strikes Back: How Wall Street Has Turned Housing Into a Dangerous Get-Rich Quick Scheme – Again,” citing a Los Angeles real estate broker noting that from October 2012 to October 2013, home prices rose 20% but the homeownership rate dropped, and that “all of his buyers – every last one of them – were besuited businessmen. And weirder yet, they were all paying in cash.”

[3] See Krista Franks-Brock, “Despite Fewer Foreclosure Starts, Distressed Sales Rose in 2013,” DSNews, January 23, 2014, which indicates 42.1% of sales were cash deals, and December Existing-Home Sales Rise, 2013 Strongest in Seven Years (2014) National Association of Realtors, at http://www.realtor.org/news-releases/2014/01/december-existing-home-sales-rise-2013-strongest-in-seven-years, which indicates 32% were cash deals.

[4] Though inventory is decreasing, the problem remains, and it is not spread evenly across the U.S.  See CoreLogic Reports US Foreclosure Inventory Down 34 Percent Nationally from a year ago, (Jan. 9, 2014), CoreLogic at corelogic.com.  We also note that there is a need for further analysis of the issues, as CoreLogic’s report acknowledges that its calculations are an estimate.

[5] Bay Area leads in underwater mortgage rebounds, (Aug. 30,. 2013), SFGate, at sfgate.com.

[6] See Wall Street Unlocks Profits From Distress With Rental Revolution, (Dec. 2013), Bloomberg at bloomberg.com.

See also, When Wall Street Builds A Rental Empire, (Oct. 25, 2013), Huffington Post, at huffingtonpost.com.   See Also, Private Real Estate Market Continues to Feed Investor Appetite, (Oct. 1, 2013), HousingWire at housingwire.com.   See Also, Who Owns Your Neighborhood- The Role of Investors in Post-Foreclosure Oakland, Urban Strategies Council at urbanstrategies.org.

[8] We note that while Fitch did not give the recent Blackstone deal an AAA rating, Moody’s, Kroll and Morningstar did so, even though the industry does not have a track record.  RPT-Fitch: Too Soon for ‘AAA” Rating on Single-Family Rental Securitizations, (Oct., 2013), Reuters at http://www.reuters.com/article/2013/10/29/fitch-too-soon-for-aaa-on-single-family-idUSFit67461420131029

[11] Charlotte’s Wall Street landlords move quickly to evict, (Nov., 2013), Charlotte Observer at http://www.charlotteobserver.com/2013/11/10/4452995/charlottes-wall-street-landlords.html#.Uul4lj1dXSh).

[12] REO to Rentals, Wall Street Meets Main Street, (Jan. 5, 2013) Mortgage Professional of America, at mpamag.com, citing to National Multifamily Housing Council tabulations of 2012 Current Population Survey, Annual Social and Economic Supplement, U.S. Census Bureau (http://www.census.gov/cps). Updated October 2012. http://www.nmhc.org/Content.cfm?ItemNumber=55508, and to National Apartment Association. http://www.naahq.org/publications/insider/Pages/nr-SingleFamilyRentalsNowExceedMultifamily,CoreLogicReports.aspx

[13] Felipe Ossa, “REO-to-Rental Edges toward Conduit Deals,” National Mortgage News, January 24, 2014.

[15] Janet Yellen Confirmation Hearing (Q&A, Part 2), Bloomberg TV, at minute 26, http://www.bloomberg.com/video/janet-yellen-confirmation-hearing-q-a-part-2-8X~NGlH8QYWMzlJzFv8kMg.html.

[16] Kerri Ann Panchuk, “Are rental bonds driving up the rent?” HousingWire, January 23, 2014.

[17] Lending Standards Tightened in November, (Dec. 1, 2013), HousingWire at housingwire.com.

[18] Wells Fargo sends refunds to some FHA mortgage customers, (Oct. 2012), Los Angeles Times at http://articles.latimes.com/2012/oct/26/business/la-fi-wells-fha-refunds-20121027.

Wall Street Investors Buy Up Neighborhoods

Rental Homes: Next Wall Street Idea?

Wall Street is at it again

Have you read the recent media reports about Wall Street firms buying up homes in order to create rental portfolios and then securitize the rental payments?

If it sounds familiar- it is.  This is the same strategy that backfired so miserably when Wall Street sliced and diced mortgages.

This week, the Center for American Progress released a report, “When Wall Street Buys Main Street” that more closely examines the first mortgage-backed security supported by income from single family rental properties.  The authors note that the bond is set to mature in two to five years.  If Invitation Homes (a subsidiary of Blackstone) is unable to pay back the bond holders, there could be negative consequences. For example, Invitation Homes could be forced to sell all of the rental homes to pay back the bond.  This sudden flood of homes onto local housing markets would hurt property values, and tenants would also be impacted.

The California Reinvestment Coalition, Housing and Economic Rights Advocates, and other advocates will be calling on federal regulators next week to address this issue.  In the mean time, if you’re interested in learning more about how this new strategy could affect current tenants, homeowners, communities, and prospective homeowners, here’s a few selected articles and resources:

  1. Home Loan Servicing Solutions Ltd. buys mortgage servicing rights from Ocwen and then hires it to collect loan payments. Altisource Residential Corp. (RESI:US) purchases delinquent loans, including some from Ocwen, to turn into rental homes. It’s managed by Altisource Asset Management Corp. And Altisource Portfolio Solutions provides services to Ocwen’s portfolio. “If a mortgage goes into foreclosure and you lose those servicing fees, so what,” said Christopher Wyatt, a housing consultant and former vice president at Goldman Sachs Group Inc.’s Litton Loan Servicing. “You can funnel it to one of your other businesses and still make money from it.” Billionaire Erbey Fails to Halt Ocwen Slide on Probe: Mortgages  (BloombergBusinessweek)
  2. Over the last year and a half, Wall Street hedge funds and private equity firms have quietly amassed an unprecedented rental empire, snapping up Queen Anne Victorians in Atlanta, brick-faced bungalows in Chicago, Spanish revivals in Phoenix. In total, these deep-pocketed investors have bought more than 200,000 cheap, mostly foreclosed houses in cities hardest hit by the economic meltdown.  How Wall Street Has Turned Housing Into a Dangerous Get-Rich-Quick Scheme—Again  (Mother Jones)
  3. Doretha Johnson, 59, had rented a home near North Graham Street and Interstate 85 for nearly four years when her landlord sold it to a subsidiary of Blackstone, a Wall Street private equity giant. The house’s new owner, Invitation Homes, raised the rent by a third, beyond what she said her fixed income would bearCharlotte’s Wall Street landlords move quickly to evict renters (Charlotte Observer)
  4. The report by the Oakland-based Urban Strategies Council entitled “Who Owns Your Neighborhood?” said that 62 percent of the 10,508 completed foreclosures in Oakland since 2007 are either still owned by a financial institution or acquired by an investor. It said that as of October 2011, investors had acquired 42 percent of all properties that went through foreclosure in the cityReport Finds Investors Buying Up Foreclosed Oakland Homes (CBS San Francisco)
  5. Fitch’s concerns are further heightened by the number of operators concentrating their investments in a handful of states and metropolitan statistical areas (MSAs), which, based on most business models, are at the neighborhood level. Because of the specific demographic targeted by these institutional buyers and the inelasticity of rents, transactions are highly vulnerable to unknown variables that could potentially impact the cash flows and yields. Among them include repair and maintenance expense, capital expenditures, rising property taxes, homeowners association restrictions, or the potential for municipality involvement. Unlike other asset classes, SFRs do not have the benefit of historical performance over several business or housing cycles that would otherwise flush out some of these uncertaintiesRPT-Fitch: Too Soon for ‘AAA’ on Single Family Rental Securitizations (Fitch Press Release)
  6. Nicole Borden, a real estate agent with Coldwell Banker in Atlanta, said she was told this month by representatives from Invitation Homes and American Homes 4 Rent that the companies aren’t offering any of the homes on the market to Section 8 voucher holders. “This is not homeownership,” Borden said. “I don’t understand how so many people are being turned down from rentals.”  Wall Street’s Rental Bet Brings Quandary Housing Poor (Bloomberg)

Appointment of Representative Mel Watt Important Step Forward for Housing Recovery

Rep. Mel Watt is Confirmed to lead FHFA

December 10, 2013–In response to today’s Senate vote to confirm Representative Mel Watt as the next director of the Federal Housing Finance Agency, Kevin Stein, Associate Director of the California Reinvestment Coalition, released this statement:

“The California Reinvestment Coalition applauds the confirmation of Representative Mel Watt to head the Federal Housing Finance Agency, the regulator of Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. For years, California tenants, homeowners and communities suffered because of the policy positions of the outgoing acting director of the FHFA, Ed DeMarco.  Mr. DeMarco set policy for how banks and servicers are required to service loans held by Fannie Mae and Freddie Mac, including how to provide assistance to homeowners facing foreclosure.  Instead of using this important position to keep more Americans in their homes, he continued policies that greatly worsened the foreclosure crisis.

These policies included:

  • Fighting against the enactment of California’s landmark Homeowner Bill of Rights, a law widely applauded for protecting homeowners and which has already been duplicated in Nevada and Minnesota;
  • Not maintaining sufficient protections for tenants negatively impacted when the homes they were renting were foreclosed on;
  • Refusing to offer favorable principal reduction loan modifications to families struggling to pay their GSE loans;
  • Selling foreclosed Fannie and Freddie homes to private investors instead of residents and nonprofits who could have used the homes to promote community stability; and
  • Aggressively working against local governments who are considering using tools to stem the foreclosure tide, including eminent domain.

In light of these polices, CRC organized a letter (link to letter) in 2012, which 96 organizations signed, calling on Acting Director Ed DeMarco to either resign or change policies at Fannie Mae and Freddie Mac.   CRC is hopeful that FHFA Director Watt will right these, and other, wrongs, and lead the GSEs to finding their way back towards helping all qualified families attain and maintain homeownership, or access much needed affordable housing. We also are pleased Mr. Watt will be in place to ensure that any reform of the GSEs will not leave behind low income tenants, homeowners, and communities.”

Additional background

Since the beginning of the foreclosure crisis, the California Reinvestment Coalition has conducted an annual survey of housing counselors and nonprofit attorneys about their experiences working with banks and servicers.

In CRC’s 2012 survey, (link to survey) housing counselors and nonprofit attorneys reported:

  • 81% reported “mixed or negative” experiences in trying to escalate cases to help homeowners when the loans were held by Fannie or Freddie.
  • 66% of counselors rated loans serviced on behalf of GSEs as either “terrible” or “bad” when asked how likely the servicers were to help borrowers save their homes when they thought that outcome was possible.

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Senate Blocks Confirmation of Mel Watt- 97 California Orgs Likely Disappointed in Today’s Vote

Fannie and Freddie

The Wall Street Journal reports that Mel Watt’s confirmation to lead the FHFA was blocked by Republican Senators today.

This vote was important because of the considerable market space occupied by Fannie and Freddie (overseen by FHFA), and the current director’s stance against helping homeowners.

To learn more about why homeowners, housing counselors, and housing advocates have been calling for new leadership at the FHFA, read CRC’s March 2012 letter to Acting Director Ed DeMarco:  97 California Organizations Demand Immediate Foreclosure Policy Changes from FHFA