The NYT has a big piece this morning on how Wall Street is now pushing a brand new product that we’ve mentioned before: Investors buying up foreclosed single-family homes, renting them out, then selling rent-backed bonds to other investors.
But what we didn’t know is that there are now 200,000 rented single-family homes in the US owned by these financiers.
There’s also now a publicly traded company, American Homes 4 Rent, that’s exclusively dealing in this securitization category.
And the disturbing thing – and, yes, it’s disturbing – is how financial firms are now lending money to small-time investors (such as dentists, plumbers etc.) to actually go out and buy these foreclosed homes, rent them out – and then let Wall Street securitize them for bundled sales.
Hey, we’re all for the free-enterprise system. This may end up working.
But it didn’t exactly work out with mortgage-backed securities last decade, when Wall Street firms clearly encouraged weaker mortgage lending practices just so they could bundle as many mortgages together as possible and make tons of money on the front end, leaving taxpayers, via bailouts, with financial responsibility on the back end.
There are already early signs this latest rent-backed securities product isn’t working out so well.
File under: The more things change …
Photo via Wikimedia Commons.