Demolishing the American Dream of Home Ownership
Ever since the financial crash of 2008, rents have risen significantly, and young home buyers have had great difficulty getting an affordable starter home. We all know that millions of homes were lost in the crash, and initially, the media was quick to blame people who got in over their heads by getting mortgages that they couldn’t keep up with. Lost in that message was the predatory lending practices of companies like Countrywide Mortgage, the federal government, and a host of other actors.
As Investopedia puts it, “When it comes to the subprime mortgage crisis, there was no single entity or individual at whom we could point the finger. Instead, this mess was the collective creation of the world’s central banks, homeowners, lenders, credit rating agencies, underwriters, and investors.”
https://www.investopedia.com/articles/07/subprime-blame.asp
But in the aftermath, the morality (or immorality) becomes much clearer. Lenders were given a free pass to reclaim houses that were “underwater” by many judges, even where legal title was questionable, and the bailout of banks by the Bush Administration was unconditional; in exchange for making bad bets in “the free market,” the government came to the rescue of the well-to-do, and let homeowners fend for themselves.
https://www.huffpost.com/entry/matt-taibbi-florida-foreclosure-rocket-docket_n_782343
In the years since, corporate purchases of homes, often for cash, have squeezed out first-time home buyers, and in some communities, special interests have convinced local towns and cities to create more “affordable” housing by authorizing remodels of existing homes to create 70 square foot bedrooms; the developers poised to do so are planning to make a killing in some communities where housing demand is high (and, as the economists say, “inelastic.”).
The dynamics of the post-financial meltdown are aptly captured in “Homewreckers,” a book by Aaron Glantz.
The book details how investors exploited the 2008 financial crisis. Glantz points out that there are two ways a government can respond to a crisis caused by reckless speculation: by stepping in or by stepping aside. Franklin Delano Roosevelt stepped in; Ronald Reagan, dealing with the savings-and-loan crisis, stepped aside. Starting in 1986, as a result of Reagan’s deregulation, countless savings-and-loan associations had run amok with other people’s money, taking risky bets; 747 of them imploded. But rather than restructuring the toxic debt, the Reagan administration sold it to “vulture investors,” those who profit off disaster by swooping in to gobble up the cheapest, most troubled assets from failing entities. The government sold at firesale prices with lucrative loss-share agreements: whatever money an investor recovered on the debt was its to keep, but losses would be guaranteed by the government. The deals cost the US government more than $124 billion in subsidies.
The George W. Bush and Barack Obama administrations did not follow FDR, but Reagan, spending $700 billion on the Wall Street bailout and frantically trying to attract investors to the collapsed housing market by auctioning off delinquent mortgages at low prices and with loss-share agreements that essentially guaranteed that the investors wouldn’t lose money. These policies not only provided firms with financial incentives to pursue foreclosures but also enabled an enormous and permanent transfer of wealth from homeowners to private equity firms, as thousands of homes were flipped or converted to single-family rental homes and rented at above-market prices.
Wall Street-type investment companies, including private equity firms and investment funds, expanded into residential real estate in the wake of the 2008 financial crisis, snapping up foreclosed suburban single-family homes at bargain prices and renting them out to middle-class families. The business model has proved so profitable that Wall Street money is now flowing into every segment of the housing market, including mobile home parks and other forms of affordable housing.
For a story on how investment firms are making money on low to moderate income people, you can read this:
And so, again, the rich get richer, and the poor get poorer. All quite legal, of course!