New Wall Street Threat to Homeownership

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    Single-family rental properties have attracted more than $10 billion from equity firms, hedge funds, REITs and institutional investors. According to Goldman Sachs Group Inc., this market may attract a total of $2.8 trillion in capital investments in the not so distant future. The government’s encouragement of this new housing market is fraught with potential societal and economic risks to the long-term health of our neighborhoods and our nation.

    Private-equity firms, hedge funds and other Wall Street investors are seeking to develop a Real Estate Owned (REO)– to- Rent Securitization Market with the blessing of the FED and FHFA.   A year ago, the Federal Reserve Board issued a policy statement on rental of REO owned by the banks they supervise and allowed the banks to rent REO properties without requiring them to demonstrate continuous efforts to market the properties.   Last fall, FHFA initiated a “pilot” REO bulk sale program in urban markets across the nation. This munificence by the federal regulators will change the course of America’s future and signals the abandonment of homeownership as a pathway to prosperity.

    As a fair housing professional, I am concerned that this allows the Wall Street predators to once again prey upon urban and inner-ring suburban communities across the country.  These new investors in the rental housing market may not be aware that they are covered under Section 805 of the Federal Fair Housing Act and its implementing regulations.

    As a homeowner, I am concerned that there may be homes on my block or in my community that are owned by Wall Street firms that have shown no accountability for maintaining the properties they have acquired. A judge recently denied Deutsche Bank AG’s bid to dismiss a lawsuit by the city of Los Angeles, accusing it of letting hundreds of foreclosed properties fall into disrepair and illegally evicting low-income tenants. According to a 2011 civil enforcement action filed by the city of Los Angeles, Deutsche Bank and its subsidiaries held title to more than 2,000 properties in Los Angeles.

    According to news reports private equity behemoth Blackstone has acquired more than 25,000 properties across the country, including 1,400 in Atlanta and with a $2.1 billion  line of credit from Deutsche Bank, is preparing to greatly expand its holdings.

    This is bad news for our communities; homeowners bring stability to neighborhoods and are more engaged in local civic affairs.  Homeownership and locally based landlords contribute to the social cohesion of our communities with shared values, commitment to the common good and bound by desire for economic prosperity for all.

    The nomination of Rep. Mel Watt (D-N.C.) to lead FHFA is an opportunity for positive systemic change. In a properly regulated housing market, homeownership does not pose a risk to households or investors. I hope that this nomination signals a recommitment by this administration to homeownership. I believe strongly that the effective enforcement of existing laws and regulations coupled with the underwriting of safe, sustainable and affordable loans is a leveraged path to financial stability, and the social mobility that is the essence of the American Dream.

    Stella J. Adams is a housing policy expert and a member of the Board of Directors of the National Community Reinvestment Coalition in Washington, D.C.

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