Wall Street is Buying Thousands of Homes and Turning Them Into Rental Nightmares
In 2008, Wall Street bankrupted themselves and destroyed the American housing market in an attempt to make a quick buck. After getting bailed out by taxpayers, they bought up thousands of homes for pennies on the dollar and turned them into rental nightmares. Here's the story.
It's called the American Dream because you have to be asleep to believe it. - George Carlin
Part 1: How Wall Street Caused the 2008 Housing Meltdown
Prior to 1968, banks made money off of home loans by collecting interest. One day they came up with a genius idea to eliminate all risk associated with home loans and make a ton of money doing so. They packaged thousands of mortgages into something called a Mortgage Backed Security and sold them to investors.. Investors in an MBS would see returns based off of mortgage payments on the underlying mortgages. MBSes allowed banks to:
Transfer risk to investors. If the mortgages defaulted, investors would suffer the losses instead of the banks
Generate tons of money quickly. This allowed them to issue more loans and in turn create more Mortgage Backed Securities.
In theory, MBSes were beneficial for everyone. Because banks only issued safe mortgages, MBSes became a safe and highly attractive investment. Banks and financial institutions everywhere invested HEAVILY in MBSes. Problems started to occur when banks ran out of safe loans to issue. Less loans meant less MBSes. Instead of slow the creation of MBSes, they issued riskier mortgages called Subprime Mortgages. These Subprime Mortgages had higher interest and adjustable rates (meaning the interest rate on the loan could change at any time). Higher interest rates meant better returns for MBS investors and more money upfront for banks selling the MBSes. On top of this, banks paid off rating agencies to rate risky loans as triple A safe. Anyone with a pulse could get a loan and buy a house well above their means.
By 2006, roughly 20% of all mortgages were subprime. Interest rates hiked, causing higher monthly payments and kaboom. People everywhere defaulted on their mortgages. MBSes lost most of their value, taking banks and financial institutions from all over the world down with them. Lost income from this crash equaled roughly 40% of America's 2007 Gross Domestic Product.
The government jumped in, bailing out banks and financial institutions using your money. To date, no one responsible for this crash has seen jail time or any significant form of punishment.
Part 2: The Death of the American Dream
So how does this relate to rental homes? In 2012, the government was trying to figure out what to do with all of these properties that had been foreclosed on. They announced incentives to buy foreclosed properties from Fannie Mae. Fannie Mae is a government agency that makes mortgages available to low and mid-to-low income families. Enter: Invitation Homes. The devil incarnate.
Invitation homes is the largest owner of single-family-rentals in the United States. They own about 88,000 homes across the United States. Invitation Homes is owned by The Blackstone Group - a massive financial institution focused on alternate investments. The Blackstone Group manages $619 BILLION in assets.
Invitation Homes' website seems inviting to anyone looking to raise a happy family in a shiny new home.
The truth is, Invitation Homes is a ruthless corporate landlord that skimps on maintenance and bombards their tenants with random fees to put more money in shareholders' pockets. While researching Invitation Homes, I discovered hundreds and hundreds of tenant nightmare stories on the Invitation Homes Facebook page.
This is just a fraction of the comments I found. Some were as recent as three days ago. Every single post on the Invitation Homes Facebook page has comments from dissatisfied customers. One man - a father of two daughters - claims to have had a gas leak in his home that maintenance refused to fix and ended up causing him and his family permanent physical damage. Another tenant experienced constant water leaks that resulted in an outbreak of toxic mold in their home. Other horror stories detail spiders, cockroaches, rats, exposed nails, ants, broken appliances and more.
Here are some fun facts about Invitation Homes. Invitation Homes spends an average of $1,142 per year on maintenance per home. The national average is almost triple that at $3,100. Invitation Homes generated $1.7 Billion dollars of revenue in 2019 and can't be bothered to spend more than .0001% of their income on maintenance. Institutional landlords evict 10% of their tenants annually, far above the national average, African Americans are more likely to be evicted by Institutional landlords than they are individual landlords.
Even looking beyond the poor quality standards, big money buying up homes in America and turning them into Single Family Rentals is an alarming trend. Owning a home is the first step many middle class citizens take to building financial security and generational wealth. If financial institutions one day control a significant percentage of the real estate market, middle class citizens would have no other option than to pay for a dangerous home they could never own. A return to fiefdom.
Next time you're selling a home, check who you're selling it to.