Another Hidden Bailout: Helping Wall Street Collect Your Rent

By Matt Taibbi, taibblog 
Rolling Stone
March 20, 2012

http://www.rollingstone.com/politics/blogs/taibblog/another-hidden-bailout-helping-wall-street-collect-your-rent-20120319#ixzz1pcXhqNoh

Here's yet another form of hidden bailout the federal
government doles out to our big banks, without the public
having much of a clue.

This is from the WSJ this morning:

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...

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.

In con artistry parlance, they call this the "reload." That's
when you hit the same mark twice - typically with a second
scam designed to "fix" the damage caused by the first scam.
Someone robs your house, then comes by the next day and sells
you a fancy alarm system, that's the reload.

In this case, banks pumped up the real estate market by
creating huge volumes of subprime loans, then dumped a lot of
them on, among others, Fannie and Freddie, the ever-ready
enthusiastic state customer. Now the loans have crashed in
value, yet the GSEs (Government Sponsored Enterprises) are
still out there feeding the banks money through two
continuous bailouts.

One, they continue to buy mortgages from the big banks (until
recently, even from Bank of America, whom the GSEs were
already suing for sales of toxic MBS), giving the banks a
permanent market for home loans.

And secondly, they conduct these quiet bulk sales of
mortgages, in which huge packets of home loans are sold to
banks at a "big discount."

By now we've come full circle. Banks create the loans, make
money selling them off on the market at high prices, then
come back and buy them again when they're low. When the GSEs
are in the middle of this transaction, it makes mortgage
lending a basically risk-free proposition: Banks get paid for
creating home loans and they end up owning valuable property
on the cheap, but in between, they offshore the market risk
to a government entity and/or to the idiot individual who
bought the home mortgage in the first place.

Even better, many of the banks/investors who buy these home
loans back from Fannie/Freddie will rent out their properties
instead of reselling them, which can vastly increase their
revenue streams. From the WSJ:

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.

It gets better:

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.

Another potential buyer, according to the article, is John
Paulson, the pillaging hedge-fund billionaire who was behind
Goldman's notorious "Abacus" deal (in which Goldman allowed
Paulson to pack a portfolio full of loser mortgages he was
shorting before those same mortgages were dumped on a pair of
Euro banks).

So congratulations, America, your quasi-governmental housing
entity is about to subcontract out mass-
landlording/slumlording jobs to the likes of John Paulson and
Warren Buffett, so that they can add to their bottom lines
collecting rent payments in the middle of a nationwide
housing slump.

As one hedge fund analyst put it to me this morning: "Help
inflate the bubble, create a foreclosure crisis, buy homes in
bulk, and rent them out to the same average homeowner."

Is this what we had in mind when we created the "ownership
society" - helping billionaires collect your rent?



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