Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or collateralized mortgage obligation (CMOs), to various investors. Wikipedia
This is important. Why?
Since January 2007, 4.5 million homes have been foreclosed on by lenders
When the first flood of foreclosures swamped housing markets at the dawn of the Foreclosure Era in 2007, a new generation of investors saw the opportunity and discovered they could make much more money by holding and renting the properties they acquired than by flipping them. Rental income from tenants—often families displaced by the housing crisis—created the cash flows necessary to fund additional foreclosure purchases and the REO-to-rental business was born. The niche report
Today The Blackstone Group LP The private-equity firm, which has spent more than $4 billion on REO-to-rental properties in the last year making it the largest buyer in the U.S., plan on buying $100 million in houses each week.
Blackstone is preparing a first-of-its-kind securitization of REO-to-rental properties, and the deal could come later this year, according to sources with knowledge of the plans From Reuters:
Fannie Mae has been busy selling bulk portfolios of foreclosed houses to well-heeled investors, with a catch—they must remain rentals for a certain period of time before they can be sold.
Unfortunately, mortgages held by the government-sponsored enterprises Fannie Mae and Freddie Mac (GSEs) are not eligible for principal reduction under the policies of Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), the regulator and conservator of Fannie Mae and Freddie Mac. Since, in many cases, modification with principal reduction could result in a less costly outcome than foreclosure, principal reduction is one tool that could reduce the impact on taxpayers and produce higher returns to investors.
DeMarco’s refusal to consider principal reduction is troubling, especially when the GSEs buy more than 70 percent of all mortgages sold.
I call upon our elected representatives to investigate the decision by Edward DeMarco who is violating his own initiative: The REO Rental Initiative, a temporary rental initiative under which qualified, former owner-occupants and tenants will be offered an option to lease properties in which they reside that have been acquired by Freddie Mac as a result of foreclosure. Why are these homes being sold as bulk portfolios.?