Wednesday, January 25, 2017

Obama's legacy: a gift to speculators on the way out the door

Yves Smith writes about a big gift that Barack Obama gave to real estate speculators in the closing days of his administraiton: The Obama Administration Bails Out Private Equity Landlords at the Expense of the Middle Class: Government Guarantees for Rental Securitization Naked Capitalism 01/252017.

Smith describes how, after the 2007-8 crisis got underway, "private equity firms piled into buying foreclosed single family homes on the belief that if the government (in this case, Fannie and Freddie) was selling."

But some of them didn't speculate as cleverly as they thought they were doing. And things started to go badly:

The logical time to start to exit was 2014, but the private equity property owners were whacked by the Bernanke taper tantrum. The most straightforward exit was to turn the properties and the management compan into a REIT, but only a couple of deals got done before that window closed. The next strategy was rental securitization, which we regarded as a terrible idea given the awful track record of mortgage servicing, and that a rental securitization involved much more in the way of moving parts that mortgage servicing. Again, a few transactions got out the door, but the market foundered after a Blackstone securitization saw a big drop in rental income in the quarter immediately following the public offering.

So in its waning hours, the Obama Administration gave a completely unjustified bailout to private equity landlords, that Fannie Mae is guaranteeing the income of all but the bottom tranches of Blackstone’s latest rental securitization. [my emphasis]
As David Dayen has been ably reporting, one of the Obama Administration's most consequential policies was to grant only very limited relief to homeowners facing foreclosure while bailing out the big banks on very favorable terms.

And this is one of the major ways in which Obama's policies conveyed to many ordinary voters that their concerns were no particular priority of the Democratic Party and President.

Smith also includes the text of this article by Wolf Richter, Financialization of Rents Gets Taxpayer Guarantees Wolf Street 01/24/2017.

No comments: