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Should wolves manage henhouses?

By Jay MacDonald ·
Monday, January 2, 2012
Posted: 10 am ET

Should the banks that helped create the foreclosure crisis now be allowed to profit from it by renting out foreclosed homes?

That's the question being asked in response to a Bloomberg report last week that several major financial and investment companies have proposed just such a solution to the Federal Housing Finance Agency.

The FHFA solicited ideas last fall for ways to support housing markets, stabilize neighborhoods and reduce the losses by renting out a portion of the 180,000 repossessed homes on the books of Fannie Mae and Freddie Mac, which were seized by the government in 2008.

Among the 400 responses under consideration were pitches from Barclays, Deutsche Bank, UBS, Carrington Holding Co. and Fortress Investment Group.

Morgan Stanley analyst Oliver Chang estimates that about 6 million homes with a combined value of $750 billion will be repossessed or sold at distressed prices in the next four years, in addition to the 4.2 million homes seized by lenders since 2006. As more homes enter foreclosure and fewer borrowers qualify to buy, rental prices are expected to creep up.

Execs at some of the companies submitting proposals were in positions of power when the housing bubble burst, most notably Fortress CEO Daniel Mudd, who was at the helm of Fannie Mae from 2005 to 2008. Mudd took a leave of absence in mid-December after being sued by the Securities and Exchange Commission. The SEC claims Mudd and former Freddie Mac CEO Richard Syron understated their subprime lending exposure by hundreds of billions of dollars. Fannie Mae and Freddie Mac have since drawn a combined $170 billion in federal aid.

Some of the submitting companies are already preparing to harvest the foreclosure crop, with or without government involvement. Carrington Holding, a real estate and mortgage servicing company, told Bloomberg it is "actively raising" $1 billion to suck up foreclosures, rent them out and eventually sell them.

Jeremy Rosen, policy director at the National Law Center on Homelessness and Poverty, blasted the idea of putting the wolves in charge of the foreclosure henhouse.

"It's really a question of whether the banks that made so much money creating this crisis are going to profit again," he told The Huffington Post.

What to do? We have more distressed homes than anybody has ever seen rotting on our streets and dragging down our property values. The lenders have shown little interest in or capacity to modify these mortgages or unleash these troubled homes, leaving hundreds of thousands of American families in limbo and the rest of us in housing purgatory.

Would allowing these private financial firms to profit from managing the foreclosures they helped create only add insult to injury?  Or is any solution at this point better than more of the same?

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January 02, 2012 at 2:26 pm

The tone of this article makes me sad. If banks own the homes, and they can do better renting them than selling them; fine. It's not like the banks took them away from folks that owned them, because those borrowers that were foreclosed on never owned them in the first place. Therefore they don't get the benefit of owership their lender does.

If any one bank tried to nail me with a bad loan, or other ornerous fees I wouldn't spend too much energy whining about their profit. I would just shop a better deal for me. No big drama, no two tiers of society (coveting) issues here. Just my understanding and comfort with fear and greed principles.