Economy Housing Market

What Could Go Wrong?

This may be the most disturbing story I’ve read today.

You should visit Mother Jones for the full report, but the gist is that Wall Street has cooked up a new form of securities that could be just as volatile as the subprime market that sank the economy in 2008.

In November, after many months of hype, [Blackstone] released the first-ever rated bond backed by securitized rental payments. Joining forces with Credit Suisse, Deutsche Bank, and JPMorgan (which recently paid a record $13 billion fine to settle accusations of ripping off mortgage investors), Blackstone has bundled the rental payments from more than 3,200 single-family houses, offering investors its mortgages on the underlying properties as collateral. After investors tripped over themselves to buy into the $479 million bond, Blackstone’s competitors announced that they, too, would develop similar securities. [...]

Dean Baker, an economist and codirector of the Center for Economic and Policy Research, is concerned that Wall Street firms are overlooking the risks of these untested investments. “You kind of just hope they know what they’re doing,”

Rent-backed securities? Yeah, we hope they know what they’re doing.

Mother Jones reports that Blackstone alone has purchased over 40,000 homes that were in foreclosure and, rather than flipping them at a higher price, they’ve decided to become landlords and securitize them. In other words, homes that were foreclosed as a result of the collapse of securities have been turned into new securities.

The 40,000 homes owned by Blackstone is only part of the 200,000 homes Wall Street has vacuumed up.

In an ideal world homes that were left vacant by Wall Street’s implosion would have been converted into affordable housing for victims of the market, but instead they’ve been bought up by competing firms whose competition will price thousands of people out of the housing market.