Obama Administration to Sell Foreclosed Homes To 'Vulture Capitalists'
Would you like to purchase a home for pennies on the dollar? We all would, but that is too bad, because President Obama is reserving that privilege for large venture capital firms or, as he likes to call them, “vulture capitalists.” Strange, since one of the main thrusts of the Obama campaign is that Mitt Romney is a so called “vulture capitalist”; and a new ad by a pro-Obama super-PAC, Priorities USA Action, claims Romney profited off the backs of the middle-class by bankrupting businesses, with the tag line “If Romney Wins, The Middle-Class Loses.”
The plan is to create large pools of foreclosed homes, known as REOs (real estate owned), currently held by Fannie Mae, that will be sold off to venture capital firms and banks at rates that are highly discounted from their real value. These entities would then be required to hold these homes for a specified period, likely ten years or more, while they rent them out at market rates: a lucrative growth industry, as each day more home owners are converted into renters by these same foreclosures.
The upshot: Obama, who claims Romney has assaulted the middle-class by bankrupting corporations for profit as the head of venture capital firm Bain Capital, has created a path for venture capital firms exactly like Bain Capital to profit directly from the bankruptcies of individual middle-class citizens who have lost their homes in the ongoing housing crisis. This constitutes a frontal assault on the “ownership-society” and the middle-class and will result in a massive transfer of wealth from the public to the private sector. Since public sector equals the collective taxpayer, it is unclear why we would want to cut financial institutions and “vulture capital” firms dream deals on these homes instead of individuals.
Home ownership is the primary way the middle-class builds wealth, and while Democrats pushed home ownership for all at the height of the housing bubble, discount bulk sales would deny the small investor the ability to purchase these homes at exactly the right time to invest in a home, the bottom of the market. Adding insult to injury, the deep discounts, which might give the average American a chance to recoup some lost net worth, will instead be handed to many of the same institutions who reaped billions from the financial instruments that led us into the catastrophe in the first place.
Who is interested? On March 20, 2012 The Wall Street Journal reported, “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.” No wonder he does not mind getting taxed at a higher rate; the crony capitalism he is the beneficiary of more than makes up for it.
Others? Lewis Ranieri, one of the creators of mortgage-backed securities and collateralized mortgage obligations, the two financial instruments generally considered responsible for America’s economic meltdown. And John Paulsen, #17 on the Forbes 400 and who, according to Forbes, “became a billionaire in 2007 by shorting subprime securities, earning a $3.5 billion payout.” The same banks that also helped create the mortgage crisis and were then bailed out by the U.S. taxpayer would surely jump at the chance to enter the lucrative rental market at an unprecedented discount that would again come at taxpayer expense. It is difficult to imagine less deserving recipients of such charity.
In the news release announcing the sale, acting FHFA director Edward DeMarco describes the program as “…another important milestone in our initiative designed to reduce taxpayer losses, stabilize neighborhoods and home values, shift to more private management of properties, and reduce the supply of REO properties in the marketplace.” In the same release, Michael Stegman, Counselor to the Secretary of the Treasury for Housing finance policy said, “We believe that this initiative holds promise for providing support to local neighborhoods that were especially hard hit by the housing crisis and will help meet the rising demand for rental housing in many communities.” This is nonsensical.
This proposed action can only have a negative effect on current homeowners, already hard hit and upside down in their mortgages from the bursting of the housing bubble. If you are a homeowner and a large pool of homes in your neighborhood is dumped at a fraction of the market value and renters are installed in them, it will clearly decrease your home’s value. It is owner-occupancy that stabilizes values and exerts upward pressure on prices.
In their May newsletter, C.A.R. (California Association of Realtors) President LeFrancis Arnold said, “The bulk REO sales program would negatively impact the housing market in California and potentially further delay a housing recovery.” This is a far more likely scenario than the one proffered by the FHFA.
What will happen in ten years when the billionaire boys club cashes out? Having made massive profits from renting these homes at market rates to the very people that lost them to the disaster they created, they will dump these homes at a discount to the market, undercutting the average citizen and depressing the housing market again, the second step in a one-two punch to the gut middle-class home owners.
Thankfully, there is some eleventh-hour resistance. Republican House Representative Gary Miller of California, who is supported by C.A.R., has introduced H.R. 5823, the “Saving Taxpayers from Unnecessary GSE Bulk Sale Programs Act of 2012.” This bill seeks to stop the FHFA (Federal Housing Finance Agency) from implementing its first pilot sale of REOs in California, which is scheduled to be “targeted to hardest-hit metropolitan areas — Atlanta, Chicago, Las Vegas, Los Angeles, Phoenix and parts of Florida.”
It is good that someone is looking out for his constituents at a time when the Federal Reserve says the median American family has lost nearly half its net worth, and median family income is dropping instead of rising. Shouldn’t American taxpayers rather than hedge fund managers and multi-billion dollar venture capital firms be the appropriate recipients of such generous government largess, a plank in the Obama platform in word, though unfortunately not in deed throughout his term as president?