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It’s a welcome departure to see Adam Davidson’s weekly column in the New York Times, which usually puts a happy face on how the 1% are winning the class war in America, have a guest writer look at the other side of the story.
Catherine Rampell has a short but compelling piece on how the foreclosure crisis was wealth transfer from lower and middle income families to the rich. Her points are simple: the typical person who lost their home wasn’t a greedhead who bought too much house or refied to buy flat panel TVs and go on cruises (if you hang out with mortgage types, you’ll get a big dose of profligate consumer urban legend). The people who were like that (and there were some) for the most part were in subprime loans that reset in 2007 and 2008 and were in the early wave of foreclosures. The people who’ve lost their homes in later foreclosures were overwhelmingly people who had the bad fortune to buy late in the housing bubble (so when the bust hit, they had negative equity and couldn’t use lower rates to refi into cheaper payments) and took economic hits as a direct result of the crisis (hours cuts and job losses; other people who were hurt were in the more typical “shit happens” categories, like suffering medical problems, with their situation made much worse by their inability to sell or refinance their home).
Rampell’s contribution is to look at the phenomenon of investors, both big and small, and how they’ve bought properties at foreclosure and then flipped them. Separately, Josh Rosner recently released the astonishing statistic: that sales of owner-occupied properties showed only a 1% gain in the last 12 months. The gains that have been driving the indexes were all in investor owned properties. Some flipped to other investors. In hot markets, local investors have been doing “mini-bulks,” acquiring small portfolios to sell to private equity investors, some without renovating them, others with modest fix-ups. Others sold them to homebuyers.
Rampell uses the example of a couple who believed that renting was throwing away their money, and had the bad luck to buy a moderately-priced fixer-upper in early 2007. Each wage earner saw their income drop and unable to get a loan modification, they lost their home. Their $309,000 Seattle home went to an investor for $155,000 in the summer of 2011. That investor just sold it to a homeowner for $290,000, not far below what the hapless couple paid for it. But the new buyer paid all cash.
Rampell tells us:
Of the 87,062 foreclosures in the last five years that were bought by corporate investors and have been flipped, about a quarter were sold for at least $100,000 more than what the investor originally paid, according to [an online real estate listings site] Redfin (Although it’s impossible to know how much investors spent on upgrades or renovations.)….
The boom-bust-flip phenomenon is just one of the most obvious ways that research suggests the financial crisis has benefited the upper class while brutalizing the middle class. Rents have risen at twice the pace of the overall cost-of-living index, partly because middle-class families can’t get the credit they need to buy. That means “landlords can raise rents with impunity,” says Glenn Kelman, chief executive of Redfin. And according to a report by David Autor, the M.I.T. economist, job losses during and after the recession were concentrated in midskilled and midwage jobs, like white-collar sales, office and administrative jobs; and blue-collar production, craft, repair and operative jobs. Employment for higher-skilled workers, on the other hand, has grown substantially.
There is a second way foreclosures have served as a wealth transfer to the capitalist classes. Foreclosures don’t necessarily result in evictions. Banks often leave properties in a “zombie” state, starting foreclosures but not completing them, leaving the owner who thought he was foreclosed on still on the hook for property taxes. Another variant which is much less damaging is to leave the homeowner in place. I recently met an investor who is acquiring homes in Atlanta. The day after he buys a house, he goes to introduce himself to the former homeowner to see if he can work out a deal to keep them in place as tenant. In the overwhelming majority of cases, he can. “They were paying $1100 on their mortgage and the bank wouldn’t give them a mod. I’ll let them rent for $700, which is way above what they’d have gotten if they wrote the principal down to the price at which I bought the house. And I tell the tenants I’d be happy to sell the home to them.” We didn’t discuss details, but it sounded as if he’d be willing to structure rent to own deals (where part of the rent would go to a down payment on the house).
He was clear that his business depended on what he saw as value destroying behavior by banks. He described how he’d recently bought a home and when he went for his usual visit to the house, a well-dressed black man met him and invited him in, saying he’d be out in 30 days and assumed it wasn’t a problem. The new owner saw the house was in impeccable shape. He chatted with the owner a bit and found out he was a bodybuilder with a high-end training business. He asked the homeowner: “You look like you take good care of yourself and the house. You’d been paying on time. What happened?”
The trainer told him that he’d bought the house at the peak of the cycle for $160,000. The house was clearly now worth way less. He tried to get the bank to modify it to a principal balance of $100,000. The bank wouldn’t consider it. “So I bought a house which is comparable to this one for $50,000 and gave this one up.”
In this case, the homeowner had enough cash to arbitrage himself. The investor told me he’d bought the foreclosed home for $40,000. Had the bank cut a deal for $100,000 (and who knows, the homeowner might have accepted a higher number), it would have come out way ahead. But that also assumes that the bank owned the mortgage. It’s pretty much a given that the bank was a servicer, and as we’ve seen again and again, servicers don’t have the incentives or the infrastructure to do mods. So investor in the mortgages lose, homeowners lose. The winners are the banks as inefficient looters (the money they skim off the servicing is chump change relative to the damage done by negligent and predatory servicing) and the investors who profit by picking up the pieces. This is isn’t a well-functioning economic system, it’s rentier capitalism. And it’s looking more and more like a doomsday machine for what remains of the middle class.
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As this post makes crystal clear, the much ballyhooed ‘prosperity’ of the Nineties and early Oughts was all jerry-rigged on unserviceable debt. ‘Economic growth’ is only achieved the same way. The only profits are sucked out by finance and the real game is musical chairs. When the music stops those lacking chairs find their assets liquidated and scooped up for pennies by speculators with access to credit.
In previous epochs the asset grabs involved farms, today it’s houses. We haven’t seen the student loan and credit card busts that are surely coming, in which there will be no assets to grab and the undischargeable debts will plunge those liquidated into a lifetime of servitude.
It’s hard to imagine what can prevent this. The creditors own our government, top to bottom.
Banks don’t put much value on soft assets.
Bankers will put some value to a soft asset only if there is a government guarantee involved or the soft asset can be exploited by an owner of a hard asset.
The capitalists want to own the hard assets because they know that these can be used as collateral for new money.
They will do anything they can to buy low and sell high. Anyone who did not grasp this principle properly got duped.
“properly duped” indeed…more disinformation from moneta, historically contrasted=documented here:
http://video.search.yahoo.com/search/video?p=youtube+adam+curtis+mayfair+set+part+4
I think that having an elite maximizing its wealth is to be expected. The middle class forgot to fight for its rights and rode on its predecessors’ coattails. Now it’s time to put up another fight but it still looks like they are not ready. Not here in Canada anyway. I expected Canadians to learn from the American experience but it did not happen. It just goes to show how hard it is to stop a moving train. People will just not change their way of thinking until they HAVE to.
I’m not an apologist for anyone. I analyze the situation and try to understand why things are happening and how they will evolve.
I know quite a few of the 1% ers and many are just as clueless as the middle class. More often than not, they just happened to be at the right place at the right time with the right package.
“know quite a few 1%ers…”
One of our brothers sits on advisory board of Gates-Microsoft. Another relative represented Boeing to Pentagon, with defense contracts, 8 phones including access to White House, security-intel, other defense contractors, on his desk.
We also include 1%ers in our circles. My point is you refuse to follow the money to assign responsibility, or call for accountability. You attempt to blame victims.
Banks are for the rich and mutuals and coops are for the working class. In the last couple of decades, the middle class began thinking the banker was their friend.
The population was duped into thinking that everyone could be in the top 10%. And getting a degree seemed to convince us even more of this secure future.
Sounds like unregulated capital flows to me. Money rushes into bargain 3rd world countries (American middle class), intentionally creates a bubble, short sells it in a blitzkrieg while everybody is naive enough to trust it, destroy property values and shut down finance, come back in another onslaught to buy up all the property on the cheap creating widespread poverty…ah free market capitalism, a true perversion of any economy. No wonder the rest of the world doesn’t like it – and all our chickens came home to roost.
Isn’t this the same model bond vigilantes use to manipulate currencies and interest rates? And forget commodities – their “markets” are just straight-up racketeering.
The developed world has been doing it for decades to emerging markets. The difference now is that they are now turning on their own people.
Up here, Canadians are laughing at the US situation but buying houses and spending as if money grows on trees.
Instead of being alarmed, Canadians think they are immune.
The weird part is that you can’t do ANYTHING to change the delusion, I’ve tried in vain. I just get perceived as a negative person or loser… it’s unbelievable!
That’s why I can’t only blame the bankers anymore. It’s determinism.
Not so fast…farmland is back in bubble territory too:
http://www.kc.frb.org/publicat/speeches/2013henderson-dc-usda-2-22.pdf
Farmland has been overpriced for a long time b/c it’s almost always assessed by tax collectors and valued by realtors at “highest and best use” (a BS term for “subdivision development” that utterly ignores ecological and other factors).
I’m waiting to see how this plays out in Canada…
The banks re now set up to win in any environment;
1. When the market is good, they make money from any type of transaction.
2. When the market slows and risks increases, they stop lending and underwrite and/or securitize what they can.
3. When the market tops, they are positioned to make it tank and pick up what they sold on the cheap: houses, securities, loans, etc… so right now with no more money to make in fixed income, I imagine they are impatiently looking to make spreads soar.
Bankers don’t like slow markets. They like to make money quickly… in this environment with the easy gains gone, I’m getting increasingly nervous.
In Canada, CMHC was put under OSFI supervision and rumors have been that it would get privatized… intuition tells me, they will wait for real estate to tank, bail it out and only then will they sell it off so the new private owners can become rentiers on the cheap.
Yves has this exactly right.
Here in NC it is clear especially in the Charlotte market the recent uptick in housing sales is due to “investors”.
The next step in the cycle will be to sell these properties to homeowners as investments. This will happen just before the downtick.
So expect a roller coaster ride.
“The winners are the banks as inefficient looters (the money they skim off the servicing is chump change relative to the damage done by negligent and predatory servicing) and the investors who profit by picking up the pieces.”
The vampire giant squid banks behave in this fashion because of the low administrative overhead for the skimming. Turn over is fast, few skills involved, no commitment to the community to see what investments might be made to better the environment that bank is located in and zero commitment to a concept rarely found-integrity. Quick buck, slam bang and the servicer is out and ready for the next trick.
Yves, I just wanted to take a minute to share what I saw happened here in Michigan with folks and their mortgages.
Starting in the 90s when rates started falling, ppl began refinancing their homes and rolling in credit card debt, vehicle loans, and any other miscellaneous debt that they had. Not only did this consolidate their payments, with lower rates, mortgage payments did not change, thus converting the previous debt payments to new spending. And ppl could then run up credit card debt on top of that. So this cycle ran until 2007. Let me also note that since payments were not increasing due to lower & lower rates, ppl could afford larger and larger home prices.
It seems that ppl had this belief that they could always continue to refinance or that their wages would catch up eventually to afford the spending. But I think it’s misunderstood that ppl were taking extravagant vacations, buying $4,000 lamps, etc. I think they were paying for normal costs of living. And in 2007 that cycle locked up. Which froze home buying, mortgage flipping, and consumer spending.
In 2003-2005, I would talk about the real estate bubble and everyone kept on saying that it was impossible because markets are local… the other argument was that there was no bubble in Michigan because prices had not gone up there.
I would mention the refis and HELOcs and they would tune out and still call me a perma-bear.
The madness of crowds.
…the “madness” of capitalist apologists, as defined in short Sam Cedar-Matt Taibi video here:
http://jessescrossroadscafe.blogspot.ca/2013/10/jamie-dimon-agonistes-sam-seder-and.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+JessesCafeAmericain+%28Jesse%27s+Café+Américain%29
Like Moneta, I am worrying about what the Canadian government has planned for our financial future. Our banks have been de-regulated and become triple threats with taking deposits, investing in derivatives and selling insurance. Besides which, we now have bail-in which means that the liabilites of the banks can be used to bail them out when they default and our deposits (over the insured amount) are liabilities to the banks. We now have been told that all 5 of the big banks are TBTF and we know how that will play out in the next crisis (which could be within the next 10 years).
Somewhere in between the “greedhead who bought too much house”, and those “who had the bad fortune to buy late in the housing bubble”, lies a vast swath of the middle class that millions of us once happily lived in, built upon the very solid, generational concept of home ownership plus hard work and a level playing field = retirement and possibly, just maybe….college for the kids. That evaporated in an instant, not due in the least to anything remotely middle class.
But herein lies the problem. I was a little guy in the scheme of things. I tastefully remodeled homes into more energy efficient, healthy places to live, without robbing folks in the process. Throughout a typical year I’d gainfully employ 50 – 75 tradesmen/women; plumbers, electricians, tile setters, solar techs, and so on, literally dozens of different crafts. We all worked hard towards a common goal; that of providing nice places to raise families, while at the same time reducing the debt load to the planet. Neither myself nor any of my subcontractors ever once thought about getting rich doing this, we simply enjoyed what we were doing and had something rewarding to show for it at the end of the day. We slept well.
News flash for the GOP: we were the real job creators. But we were also the first to go under the bus in or around 2007. And now forward to the present day: I can easily say that each and every one of my fellow, former co-workers is either well below the poverty line, barely surviving, having little to zero work in their trade over the last half decade, or, they’re working for hedge fund owned rental properties for a quarter of what they used to make as self-employed craftsmen/women. From a living wage to minimum wage, seemingly overnight.
The view from Washington and Wall Street must be extremely dim not to see that the middle class has been almost entirely bled-out….there’s simply nothing left to give. Don’t bother mentioning the concept of austerity to millions of my peers….we understand the meaning well. We live it daily.
Thanks Yves for all you and yours do.
“Somewhere in between the “greedhead who bought too much house”, and those “who had the bad fortune to buy late in the housing bubble”, lies a vast swath of the middle class that millions of us once happily lived in, built upon the very solid, generational concept of home ownership plus hard work and a level playing field = retirement and possibly, just maybe….college for the kids. That evaporated in an instant, not due in the least to anything remotely middle class.”
How so? If one bought sensibly, not at the height of the bubble by paying far too much, and put a fair amount down at the time, and did not convert equity into debt, how did their lives “evaporate in an instant”? If they are still working, seems to me that they’re probably doing OK.
It’s a lot of fun to cover your ears with your hands and shout “Lalalalalala” so the person trying to talk to you can’t be heard–and feels your contempt for him/her deep down in their soul. But most of us stop doing it at age 6 or so, for obvious reasons. Congrats to you for staying in touch with your inner toddler.
“if everyone were as smart and virtuous, and forethinking, and industrious as IAM, they wouldn’t be in the pathetic situation they find themselves in now.”
betake themselves to the workhouse, forthwith!
I bought sensibly. I put 20% down on my first house, never used it as an ATM as the perceived value increased and here’s the real “shocker” – never missed a payment in the almost two decades I lived there.
A call to my lender triggered a drive by BPO and whether trumped up or not – an erroneous vacancy report. The next thing I knew, even though current, I found myself in foreclosure hell.
I continued to send my payments each month but they were returned. I hired what I thought were competent attorneys. In the end, it did not matter. The servicer got what they wanted all along – my house and the equity in it.
Yves has been one of the few to cover “servicer-driven” foreclosures. There are many, many of us who’ve had our homes stolen in this fashion.
I’d love to see an accurate report of the average time from purchase to foreclosure. I bet it would surprise. I’ve met many people who lost their homes after paying on it for decades or more.
As I stated in a comment the other day in response to David Dayden’s piece, the banks and servicers got away with the biggest heist in history. And very few – even those who suffered at the hands of the thieves – seem to care.
Do you know if your mortgage had been securitized? Did your competent attorneys pursue that? It’s the thing I keep going back to, as in here: http://www.nakedcapitalism.com/2013/10/david-dayen-mortgage-settlement-monitor-lets-servicers-steal-from-customers-for-two-years-before-stepping-in-with-toothless-metrics.html#comment-1466505
There are these walnuts, bank, servicer, investor, and it seems to me this farce runs on the assumption that there is an unbroken chain of title under one of those shells. Has to be. Yet what if there isn’t? What if all the shells are empty?
s spade at top called it musical chairs, which at least implies an end, but it also seems to me like a merry-go-round, a lot of endless spinning that can never get there because there is no there there. And then I look around for competent attorneys making that case, competent courts, and I don’t hear many stories. I cited one Fifth District case in California, Yves cited no-MERS Oregon.
@Ptup — Oh, for heaven’s sake. I did all the things you said and even paid off my house 10 years ago.
Foreclosure fraud hit my lovely middle-class neighborhood like a brick through the front window, and it hasn’t stopped yet. Due to bank REPOs and vacant properties, housing values have been halved.
The state has slashed public school funding so local property taxes, high to begin with, are being raised as often as voters will allow. The municipal government, faced with a declining population and tax base, is hiking fees everywhere it can.
The idea that if you didn’t buy at the height of the bubble, or succumb to borrowing on your home’s equity, you came out of the last 5 year fiasco whole is simply, patently false. Tens of millions who managed to hang on to their jobs and their homes now live in houses worth less, and in neighborhoods that are struggling.
Of course, those whose jobs were eliminated and whose homes were stolen by the banks have by far suffered the most, and that includes members of my own family and close circle of friends.
Most businessmen will tell you the savviest players make the most money/gain market share in a downturn. Buffet has a big thing on this. So why is this chocking. Its always hard for investor to gauge what typ of negative carry you want to hold in good-fair times as optionality when assets come down.
Sometimes I read someone else’s writing and realise just how rubbish I am at describing what’s wrong and why. I found this today which captures everything that is so terribly, terribly off beam with society, the economy and our culture, at least in the UK:
“Unbalanced economic policy. A failed bet on London’s bullshit industries. Outsourcing of the working class to China. Destruction of labour movement. Exploitative media. Trying to run a consumerist economy with consumers who don’t have any money. Replacing conviction with measurement, kindness with stakeholder consultation. If only there was someone to blame. The country shot itself in both feet when it gave up its hard-won freedoms and right to resist: the villains of the piece listed above are merely the vultures who have taken to the hobbled form. We sold our freedom and now eavesdropping on most conversations is like listening to the chit-chat of prisoners. I pity the NSA for having to listen to our shit. There is so much goodness in people and it is the responsibility of people in power to use that inclination for good to the betterment of all.”
This was culled from a post on another website, http://www.craptownsreturns.co.uk/index.php you have to scroll down a bit to get to this worthy diatribe…
Reassuring to know that it’s not just us in England. In a funny way.
Obviously, as my brother has noted, members of (Obama’s) “professional left”
are not welcome to reply on Naked Capitalism forum…meanwhile
Milton Friedman advocates, carrying water for rightwing think tanks are allowed their advocacy…
What are you talking about? Please point me to any Friedman advocacy that goes uncontested. (Or any Friedman advocacy for that matter.)
O.K.-here’s “moneta” attempting to blame the victims-“defending” the bankers:
Moneta says:
October 6, 2013 at 8:52 am
Banks don’t put much value on soft assets.
Bankers will put some value to a soft asset only if there is a government guarantee involved or the soft asset can be exploited by an owner of a hard asset.
The capitalists want to own the hard assets because they know that these can be used as collateral for new money.
They will do anything they can to buy low and sell high. Anyone who did not grasp this principle properly got duped.
Read more at http://www.nakedcapitalism.com/2013/10/how-the-foreclosure-crisis-made-the-rich-even-richer.html#bRDiTsjzvhWG2Ecz.99
………………
…obviously has no idea banker-corporate “assets” have been monitized, to remove them from definable-profit-taxable status (“Treasure Islands”-Shaxton)
Here’s another example, provided earlier=short video, which is intentionally ignored by Friedman “free market” apologists:
http://jessescrossroadscafe.blogspot.ca/2013/10/jamie-dimon-agonistes-sam-seder-and.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+JessesCafeAmericain+%28Jesse%27s+Café+Américain%29
I am very well aware of the corruption in banking and I want them stopped.
However, I can not blame them any more than the people who did not do anything to stop them. The elite want to maximize wealth and power. This has never changed in the history of humanity. What has changed in the last few decades is the middle class forgetting to protect its rights.
From my POV, there is no blame. There are only causes and consequences. I want the banks to get right sized but it will not happen until the people actually want to understand and unite.
I was ridiculed and pitied during the formation of the bubble but I never expected to be called an agent of disinformation.
“moneta” says-“there are only causes and consequences”?
Following the money, therefore, where is it? Government, and victims of Wall Street debacle don’t have it, do they? (direct question)
That’s nonsense.
The only people we blacklist are trolls. That is based on BEHAVIOR. That means both people who engage in abusive and dishonest argumentation and persist after warning are out. This has nothing to do with political views per se. We’ve probably banned more right-wingers simply because there seems to be much more organized trolling on the right end of the spectrum that the left.
We have house conservatives and even a house Obot (I won’t name him but he annoyingly puts in blatant Obama PR that is often completely off topic, but does it infrequently enough that we tolerate it).
I have a sneaking suspicion you are connected to a particularly persistent and disingenuous Obot who showed up in the last 9 months and was both dishonest and extremely persistent in his argumentation, in that he clearly just intended to wear everyone down and not actually respond to rebuttals. It was a no-brainer to get rid of him. He was warned and he persisted.
We’ve even had words privately with some regulars who have violated house rules, and some have corrected their behavior, others have gone off and sulked for months but eventually came back.
Our family came to your website several years ago, Yves, having read “Econned”,
and some have been learning-responding here since very nearly the beginning of that experience. You castigate some for what you allow others-view posts above by “moneta”-he does exactly what you accuse others of-he has no rebuttal to documentation, and provides none of his own-rather, goes on his own ideological dogma, which includes bashing of government in all cases. Without oversight, regulation, which only government can accomplish, real democracy cannot function.
It is in the interest of the “free marketeers” to blame government and victims of
Wall $treet economic debacle, overtly or subtly, while providing no personal experiential data, nor documentation of their own dogma. When provided documentation, it is they who avoid response.
By the way, there are 12 (not including extended) of us, not including parental viewers. Our family is long involved politically, and with education and healthcare-nationally, and internationally.
We thank you for your work-it is representative of the finest remaining media in our society.
Maybe I should write an essay on my perspective from a French-Canadian woman with a special needs child.
Perhaps you could stop avoiding all documentation contrasting your opinion?
You assert opinions with no documentation of position, then run away from documentation contrasting your own statements.
Lambert, Yves, and others on this forum have long rued lack of aggressive “left”
viewpoint. Yet when in evidence, conflate, just as Yves did above, those who profess such, in contrast to ideology blaming government and victims of Wall Street debacle-specifically yours. Yet again “moneta” avoids substantiation of issues, but is not called to account.
I ask again-follow the money-where is it? (follow the CDS’ to answer)
Here is Gretchen Morgenson’s on topic summation of, September 29;
“Last week, for the first time since financial crisis (note-not government or borrower crisis) the government faced off in court against a major bank over lending practices during mortgage mania. Lawyers for the Justice Dept. contend that Countrywide Financial, a unit of BofA, misrepresented the quality of mortgages it sold to Fannie Mae and Freddie Mac, taxpayer owned mortgage finance giants….Fannie and Freddie incurred losses of $850 million on defective loans and net losses of $131 million….”
This month in New York, a judge found BofA in contempt of the debt discharge
order protecting consumers and required the bank to pay legal bills and $10,000 per month till demands for “mortgage delinquency” was stopped. The judge stated he hoped BofA lawyers would get the message-“This is not a stupid mistake by the bank-this is a policy”.
This case was just one of many in which homeowners received phone calls and threatening letters from the bank. “I believe the bank has made a conscious decision that it is less expensive to pay sanctions than to change internal processes-this problem is nationwide”, said the judge.
………….
Part of our family lives in Toronto, “moneta”. Their experiences often contrast yours. Please do not attempt to wash off suggestions you document
examples contrasting your experiences, and please do provide documentation leading to your own opinion?
Professor Lars Pålsson Syll over in Sweden predicts that -“The Sveriges Riksbank Nobel Prize in Freshwater Economics for 2013 goes to Eugene Fama”
-“This year I’m sure the prize committee will show how in tune with the times it is and award the prize to Eugene Fama.
Why?
1) Well, he’s a Chicago economist and a champion of rational expectations and efficient markets.
2) Nowadays freshwater economists seem to be the only ones eligible for the prize.
3) An economist who has described the notion that finance theory was at fault as “a fantasy” and argued that “financial markets and financial institutions were casualties rather than causes of the recession” has to appeal to a prize committee with a history of awarding theories and economists totally lacking any real world relevance.”
http://larspsyll.wordpress.com/2013/10/06/the-sveriges-riksbank-prize-in-freshwater-economics-for-2013-goes-to-eugene-fama/
“Cash”? Money laundering?