Alan Pyke — Wall Street Is Drooling Over The Money It Will Make On Americans Who Can’t Afford Houses

Bad news for American families is great news for the financial industry, according to the real estate finance industry trade magazine CRE Finance World (CREFW).

Workers’ incomes will continue to decline and homeownership will become an ever more remote dream for the typical American, boosting demand for rental housing and pushing the cost of rent up, an article in the magazine’s new edition says. That will cause the market for rental housing securities — complex financial contracts backed by rental properties — to explode over the next year, Deutsche Bank analyst Harris Trifon writes.

Think Progress
Wall Street Is Drooling Over The Money It Will Make On Americans Who Can’t Afford Houses
Alan Pyke

First, securitize the mortgages, then foreclose, then securitize the rents. What could go wrong?

Jeff Cox — It's Back: Shadow Banking Hits Post-Crisis Highs

The move back to some of the less traditional forms of banking comes as regulators and lawmakers push for greater regulation and higher capital requirements....

"The shadow banking market is coming back relatively strongly and it will be a dominating force in the financial markets a couple years from now," said Dick Bove, vice president of equity research at Rafferty Capital Markets.

CNBC NetNet
It's Back: Shadow Banking Hits Post-Crisis Highs
Jeff Cox | Senior Writer

Zero Hedge — Landlord Blackstone Rushes To Capitalize On Housing Bubble By Launching First Ever REO-To-Rent Securitization

In addition to the phenomenon of "foreclosure stuffing" described here extensively before, one of the main reasons for the artificial drop in housing supply has been the ongoing government-subsidized,GSE/FHFA endorsed REO-to-Rent initiative, through which large asset managers have been encouraged to take advantage of government funded, risk-free financing and purchase foreclosed properties in bulk, with the intention of converting them into rental properties. The REO-To-Rent has traditionally been open to the biggest of financial companies, or at least those who don't have the stigma of legacy mortgage origination resulting in billions in litigation reserves, which means mostly hedge funds and PE firms. One of the main players in the space, Och-Ziff, decided to pull out of the landlord business in October of last year because, as Reuters reported, "the returns it is generating from rental income are less than expected and it is looking to take advantage of a recent rebound in home prices in northern California." In other words, selling while the selling is good.

Of course, there is another, far more traditional way to offload risk while preserving some of the upside: dump the balance sheet exposure to others while giving them a fraction of the potential upside yield. This is precisely what the big banks were doing during the last housing bubble when massive residential mortgage-backed security portfolios were packaged, spliced, securitized (sometime without the feedback of firms like Paulson pre-shorting the MBS courtesy of firms like Goldman) and sold off to other yield-starved investors. Everyone knows how that ended.
So fast forward to today, when this final missing link from the credit and housing bubble is finally here too, following news that mega-PE firm Blackstone is pushing forward with the first ever REO-To-Rental securitization.....

Zero Hedge
Landlord Blackstone Rushes To Capitalize On Housing Bubble By Launching First Ever REO-To-Rent Securitization
Tyler Durden

Remind me how this is "productive?"

Winterspeak — Securitization of real estate serves no purpose

The purpose of banking is to make credit decisions by having private capital in first loss position against default. To ensure that that private capital remains in first loss position, any loan extended by an institution which has made a credit evaluation should stay on the books of that institution until the loan has matured.

This may make loans more expensive, but you're getting what you are paying for -- good credit decisions where the incentives are to lend out money when you expect it will be paid back.

Winterspeak.com
Securitization of real estate serves no purpose
Winterspeak

Do we want banks to be chiefly risk managers or risk takers?

Joshua Holland lambasts John Carney

But before digging into what passes for an “argument” on CNBC's blog, let me again restate that it was not home-mortgages that caused the world-wide recession. Even if Carney weren't completely wrong about regulators forcing lenders to adopt ridiculously lax standards, it would still be the case that the global meltdown was caused by an array of “innovative” financial instruments that were cooked up in the by-then-largely-deregulated financial sector. I wrote:

"The entire subprime mortgage market was worth only $1.4 trillion in the fall of 2007, and that includes loans that were up-to-date. As former Goldman Sachs trader Nomi Prins noted in her book, It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street, the federal government could have bought up every single residential mortgage in the country – good, bad and in between – and it would have cost a trillion less than the bailouts.

"What brought down the global economy was as much as $140 trillion worth of financial gimmickery built on top of the mortgage industry. It was the alphabet soup of the credit meltdown – the CDOs, default swaps and other derivatives that made less than a trillion dollars of foreclosed loans into an economic weapon of mass destruction that would cost the American economy alone $14 trillion in lost wealth."

In other words, it was the massive pile of paper and heavy “leverage” built on top of those home loans that caused the financial crash. Ignoring a central argument that one can't refute is a sure a sign of intellectual dishonesty, and despite the fact that I begin my piece with this simple reality, Carney doesn't touch it at all in his rant.

Instead, he devotes his post to advancing, yet again, the frequently and decisively debunked fable about how the Community Reinvestment Act (CRA) mandated that banks loosen their standards – a narrative disassembled not only by myself and Nomi Prins, but also by Nobel Prize-winning economists Joseph Stiglitz and Paul Krugman, former FDIC Chair Sheila Bair, the Federal Reserve Board of Governors, and many, many others. I called it a “zombie lie” because no matter how frequently it's stabbed by factual reality, there is always someone like Carney ready to dig up its remains and bring it back to life to divert attention for Big Finance. 

Read it at AlterNet
CNBC Editor Launches Sloppy, Dishonest Attack on AlterNet in Defense of Wall Street

by Joshua Holland

Hollands initial post and Carney's response are linked to in the post above.

Looks like the CRA kerfuffle is going to be with us at least through the '12 general. The left holds it is a "zombie lie," while the right holds it to be obvious fact.

The country is deeply divided over the facts. So what else is new.