Looks like they're doing to housing what sub-prime used car lots have done for auto loans. What could go wrong?
The phase after that will probably include pitchforks. Jesus. That's mafia-level stuff. I bet since the owner can't foreclose, if you package these, they could make for high class tranches. I do hope they are creating CDO's with these, selling them to pension funds, and then taking swaps against them. That'd be great. Fantastic stuff. Fuck.The firm says on its website that it is “creating investments to capitalize on the next phase of the U.S. mortgage” market.
In April 2011, Harbour sold a contract for deed on the house for $36,300, according to public filings. Under the terms of that deal, the 24-year-old woman who now lives in the house is required to pay 10 percent interest or a monthly base payment of $314 — a sum that does not include property taxes, insurance or any outlays for repairs or renovations.
The incentives here are so perverse that it puzzles me that they could be legal. Consider the used car market, which has gone through this type of "financing". Seller prefer for buyers to default, because they can collect, say, 20% of the car's value, then resell it at maybe 5-10% depreciation, rinse and repeat. The sums that some dealers can collect on a single, shitty old car can be many times what the car is actually worth. Now consider the same with housing, but with the "bonus" (from the seller's perspective) that houses don't always depreciate. Some do, while others gain astronomical value. If, for example, a neighborhood gentrifies, that $30,000 house could be worth $300,000. Does anyone think in such case that the "homeowner" is ever going to be able to capitalize on the appreciation? Call me a cynic, but I highly doubt it. In theory, each seller could wait until a house is 50%, 60% or 99% paid off then come up with a reason to evict or convert to rent, and then "sell" the house to the next poor bastard. These people, being largely poor, will doubtlessly have limited access to the courts, and will therefore also likely have little recourse no matter if the eviction/conversion was legal. This could get ugly for a lot of people really fast. (Apologies for all the quotes, but I can't in good conscience use actual, commonly accepted terms for what these people are doing.)
The earlier link in your article is straight-up nightmare fuel. One of the larger firms in this market, Harbour has bought more than 6,700 single-family homes in Ohio, Michigan, Illinois, Florida, Georgia, Pennsylvania and a handful of other states since 2010 — most of them from Fannie Mae, according to the mortgage finance firm and the foreclosure research firm RealtyTrac. Ten of the more than 50 homes Harbour bought in Akron have been torn down after being condemned and two others are slated for demolition, Mr. Groeger said.One of several firms Mr. Groeger’s office has fielded complaints about is Harbour Portfolio Advisors of Dallas.
These contracts, a form of seller financing, have ballooned in recent years as low-income families unable to get traditional mortgages have turned to alternate ways to buy homes. The homes are often sold “as is,” in need of costly repairs and renovations, and many of the transactions end in eviction when buyers fall behind on payments. Fuck.In these deals, a seller provides the buyer with a long-term, high-interest loan, with the promise of actually owning the home at the end of it.
It's more than that, though. Here's how the article parses out: 1) Harbor Homes buys up distressed properties. They then loan-shark these houses like Rent-A-Center: you don't own it, but you live in it, and you have no legal claim to it, but if you pay the purchase price (which is whatever they can make you agree to) you own it. Meanwhile if you miss a payment they can kick your ass to the curb and meanwhile, you're paying four times the going mortgage rate (which is compounding, by the way - type "mortgage calculator" into Google and play around with those rates) and meanwhile, if they sell the house you don't have any sort of recourse to whoever buys it. But wait, there's more. 2) There's no insurance on these houses and there's no traditional protections between buyer and seller because it isn't, strictly speaking, a real estate deal. And these are shit houses. Of the 50 Harbour owned in Akron, twelve have been or are being demolished. That's about a 25% condemnation rate. So these are poor people getting ass-raped to live in squalor that they can't afford to fix... until the authorities show up and say "it's unsafe to live here" and they're out everything. No equity, no nothing. But wait, there's more. 3) The houses being "sold" are "sold" under a contract that requires the tenant to execute all necessary repairs within four months and pay all property taxes. As these are FNMA foreclosures that went for pennies on the dollar, and as they are being sold for 3-4x the purchase price, they're basically honeytraps for the indigent sold on the idea of Living The American Dream. We're talking people who can't scrape up $8k cash to buy a moneypit (not that they'd ever be allowed to; these properties were sold hundreds at a time) now paying 10% interest for 30 years so they can buy that same moneypit for $280/mo not including property taxes not including repairs with the threat of eviction hanging over them if they so much as miss a single payment and if they don't pull it off, either the company evicts them or the City bulldozes their house. But wait, there's more. 4) These utter shit houses, of which Harbour owned 6700 or so, are being sold. That's what this article is about - the fact that Harbour is offloading its non-performing assets to greater fools looking to catch a knife. Among those greater fools are "individual investors" (suckers), Shelter Growth Capital Partners (ex-Goldamn vultures), Battery Point Financial (ex-Goldamn vultures) and New York Mortgage Trust (some of the guys that brought you mortgage-backed securities in the first place). What do they have to say? He says the company now uses its own loan-servicing firm to manage the homes and contracts it bought from Harbour, which has partnered with National Asset Advisors, a firm that operates out of a partly empty strip mall on the outskirts of Columbia, S.C. "We're going to loan shark even harder." _________________________________________________ What the article is saying, between the lines, is that 7,000 houses that were foreclosed during the housing crisis were bought up by a shady-ass loan shark from Dallas who proceeded to rape poor people with promises of the American Dream. Now, 7 years later, the bloom is off the rose and that private loan shark is selling off chunks of his "portfolio" to large, institutional investors. Which means two things: (A) he wants the cash now because the writing is on the wall (B) the same shitheads that caused the housing collapse last time through vicious derivatives and predatory lending are at it again. 6,700 homes. “We look at it as a loan, not as an opportunity to repossess,” Mr. Mumma said, with respect to contracts for deeds and homes bought from Harbour.
It's more accurate to say that housing prices are already messed up. That's the thing that the realtors won't tell you - when everyone can get cheap financing, everyone prices their houses higher. It's simple supply and demand - if everyone needs a house, and houses cost $50k, but then the government decides everyone should be able to get a $100k mortgage, houses will double in price.
And of course the interest deduction and the capital gains exemption do nothing to put the breaks on this phenomenon. My neighbor just put his house up for $600,000, and it's not that different from mine. If it sells (and I don't think it will at close to that price), I think I'll try to be the lesser fool and get out of the home ownership game for a year or two until things get irrational in the other direction again.
Yeah, the tricky part is always calling the top. Locally, we hit it a few months ago. I'm already starting to see panic sales of flips. Thing of it is, though, how stupid is your rental market right now? 'cuz ours is stupid. Without getting too dumb let's make up some numbers: Let's say we bought the house for 60k in 2000. Current market on it is 130k. We pay a $500 mortgage that matures in 9 years (we refinanced into a 15 in 2009), but we were renting the fucka out for $750. So we're already $250 ahead on renting vs owning in this shell. Funny thing, though - in 2009, when the economy tanked, the rents didn't go down. When all these people lose their houses 'cuz they got mortgages they can't afford, it makes the rental market worse because if you've got a place that you can afford, there's suddenly a lot of people who don't have the nut for a downpayment, don't have the credit rating for a loan, but need a roof over their house. If the economy takes a shit when it's amenable to me, I'll likely buy another house, not sell this one.
It's a good point, and one I've also considered. I don't really need an equity cashout, and I also generally like where I live. I have a cousin who is some C-suite occupier of a finance firm, and he once told me that one should never look at their primary residence as an ATM. I agree with him in principle, but goddam is it ever tempting to make a quick buck when possible (of course he was also talking about cash-out refi, but I think the same rule basically applies here). The rental market here is high by our standards, but by west coast standards it's laughably low, I'm sure. Anyway moving sucks, and selling a house sucks, and I won't do either for less than what I consider to be a lot of money at this point in my life.If the economy takes a shit when it's amenable to me, I'll likely buy another house, not sell this one.
Here's what I know: if it's advantageous to you, it's probably illegal. Banks don't do shit out of the goodness of their hearts so always try and figure out who's getting screwed. If it's you, don't do it. If it's the guy with worse credit than you who isn't going to get the offer... ...well, that's why we're in a 15-year. There was no way I could force Bank of America to offer their TARP funds to the people who needed TARP funds, and hey - when they offered them to us, we were grinding up placentas for money so it's not like we were living phat. But it was a $70k giveaway that benefited us and it wasn't supposed to.I agree with him in principle, but goddam is it ever tempting to make a quick buck when possible.