The foreclosure wrecking ball plowing through black neighborhoods keeps swinging. Yesterday’s predatory, subprime lenders have been replaced by today’s speculating, absentee owners. Alyssa Katz has been on the housing predation story for at least a decade, and in this month’s American Prospect she investigates what’s happening to all those foreclosed houses piling up in black and Latino hoods. It’s not pretty.
Turns out that large, national speculators are buying up properties from mortgage servicers—which are the firms that banks and investors hire to manage their home loans, from collecting payments to overseeing foreclosures. Those speculators then act as clearinghouses, selling the property off—often in bulk—to individual speculators. Katz cites one company, Stonecrest, which has bought up 1,800 homes around the country. A number of those, Katz writes, are what Stonecrest calls “dump property”:
As Stonecrest advises its investors: “It’s best to purchase REO properties [bank-owned] in bulk. The potential profits on the sellable properties should easily cover investor losses on the worthless ones.”
The result is a huge stock of deteriorating, empty homes that encourage crime and depress property values in the neighborhood. And when these companies aren’t facilitating absentee ownership, they’re recreating the subprime fiasco by pushing predatory, rent-to-own lending schemes and training people to be slumlords. Katz describes the business model of California-based Stone Equity Group this way:
It buys foreclosed properties for four figures and holds seminars to recruit individual investors, encouraging them to use their retirement funds to buy the houses for around $20,000 apiece. ("Erase retirement poverty" is a company slogan.) Those investors in turn expect to find tenants to live in the houses and ultimately own them, paying $500 down and $500 a month on installment plans.
All of this, as Katz details, undermines local efforts to stabilize neighborhoods amid the housing crisis. Nonprofits working in Atlanta to reclaim foreclosed properties and turn them into affordable housing reported to Katz that they struggle to compete with the large national speculators, who swarm foreclosure auctions and snatch up all the homes. I’ve heard similar tales from folks working to stabilize blocks hit hard by foreclosure here in New York City.
The Obama administration’s (thus far failing) foreclosure relief plan attempts to order how mortgage servicers work with struggling homeowners. (The largest of those servicers are actually arms of the same big banks that got bailout money.) But Katz notes that the administration’s program says nothing about what those servicers can and can’t do with the homes they’ve already foreclosed upon. That’s self-defeating, given that the plan does give money to states for neighborhood stabilization efforts. It’s an oversight that must be fixed.