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Over the last two years, private equity firms and hedge funds have amassed an unprecedented real estate empire, snapping up Spanish revivals in Phoenix, adobes in Los Angeles, Queen Anne Victorians in Atlanta, and brick-faced bungalows in Chicago. In total, Wall Street investors have bought more than 200,000 cheap, mostly foreclosed houses in some of the cities hardest hit by the economic meltdown. But they're not simply flipping these houses. Instead, they've started bundling some of them into a new kind of financial product that could blow up the housing market all over again.
But buying houses cheap and then waiting for them to appreciate isn't the only way Blackstone is making money on these deals. It wants your rent check, too. In November, after many months of hype, the firm released the first-ever rated bond backed by securitized rental payments. Joining forces with Credit Suisse, Deutsche Bank, and JPMorgan (which recently paid a record $13 billion fine to settle accusations of ripping off mortgage investors), Blackstone has bundled the rental payments from more than 3,200 single-family houses, offering investors its mortgages on the underlying properties as collateral. After investors tripped over themselves to buy into the $479 million bond, Blackstone's competitors announced that they, too, would develop similar securities.
"It's just like a residential mortgage-backed security," says one hedge fund investor whose company does business with Blackstone.
Blackstone acquired the mortgage for 7 World Trade Center in October 2000 from the Teachers Insurance and Annuity Association.
Why not have the equipment and personnel already in place, unbeknownst to the ignorant masses?
originally posted by: pheonix358
Because having an ops center surrounded by Joe and Jane with their scoped AR15s and hunting rifles is not good strategy.
originally posted by: Aazadan
While I don't disagree with the premise that the banks were looking to become landlords and that's why they never offloaded the homes, what do they do this time when no one can afford rents?
I can say right now that if I were going to end up homeless because of a bank needlessly increasing rent, I would burn the home down or in some other way destroy it before I left. I might goto prison for that, but their investment would be gone and in prison I would have food and shelter fixing the initial issue. If 5% of people losing their residence did that the courts wouldn't even be able to keep up.
originally posted by: MystikMushroom
Well, we all remember what happened after the middle ages...the dark ages.