Blackstone in Sacramento

The basketball "whales" aren't the only whales who've come to town.  Our local paper reports that Blackstone, the investment group, has purchased more than a thousand houses in the region.  Most of them were foreclosures, either purchased at auction or in bulk sales from lenders, and Blackstone intends to fix them up and rent them out.  While the article isn't bad overall (this is high praise from this critic of the Bee), we get the usual "omigod they're going to let tenants live here" mantra, as well as the "will the landlord keep the place up" junk.  Sacramento, a city which is 48% tenants, likes to believe that it's really made up of respectable homeowners who spend their time on home improvement and civic involvement, while the lowlife tenants put their junked cars up on blocks, never clean the bathroom, and deal drugs out of the garage while running a bordello out of the living room.

Blackstone, much like several other hedge funds and the like, saw an opportunity to buy foreclosed houses on the cheap, fix them up, and rent them to former homeowners.  This enables them to charge relatively high rents, as the former homeowners have credit problems that preclude them from renting elsewhere.  They buy in bulk, standardize their improvements, and manage the properties much like apartment complexes.  This isn't necessarily a bad management model, as small landlords often hire as needed or, heaven forfend, try to make repairs themselves.  (I remember once having a prospective landlord tell me that it had taken five attempts to fix the shower in a unit he wanted us to rent.  We didn't move there.)  Having regular staff to take care of maintenance and repair problems is a good thing.

So,the most curious construction was the complaint of unnamed "tenant advocates" who were concerned that Blackstone might not be able to fix a broken kitchen faucet.  Now the faucets are new, so they aren't likely to break anytime soon, unless you believe that the first thing a tenant does on moving in is to head for the kitchen faucet with a hammer.  (I should note here that my husband has replaced two kitchen faucets, one of them in our present rental.  It wasn't that it was broken.  It produced two water temperatures, tepid and scalding, and I wasn't willing to live with that.  He proceeded to the hardware store, purchased a new faucet and the needed supplies, and replaced it for me.  He noted that all you have to do is follow the instructions.)

But getting back to the main point, that isn't what the named tenant advocates said.  In fact, one of them, Dean Preston, said that "he wasn't surprised that a multibillion-dollar investment fund could hire competent property managers and fix toilets."  Preston, Executive Director of Tenants Together, and Melody  Simpson, of watchthisproperty.com, were more concerned about the expected return on investment--some 15%--and what would happen to the tenants when Blackstone decided to liquidate their investment (sell the houses).  Now a 15% ROI might be possible, not because of their superior management, but because they have a captive group of tenants who have few options, and will pay any price for housing.  I couldn't find any information on their income/credit requirements, but one of the other groups will allow tenants to pay 41% of their gross income for rent.  For most people that would leave them precarious every month.

Finally, it always irritates me when reporters don't do simple research to check the assertions of their interviewees.  Blackstone, unlike some of the investor groups, regularly files unlawful detainer actions against the former homeowners, although they asserted that they were filing eviction actions against tenants.  I found at least ten for 2012, and at least 12 more for 2013.  (Yes, I know it's only April, and I can only search for UDs through the beginning of February.)  I know this because I did a simple search of the Sacramento County records, and found Notice of Default and Notice of Trustee Sale for many of those evicted.  It's likely that many of the former homeowners had already moved, so Blackstone's action was simple cruelty, as it makes it much harder for the evicted to find new housing.

The Warm Glow of Being Right

In recent days we've been treated to a commemoration of sorts, the 10th Anniversary of the illegal, immoral and disgusting war against the people of Iraq.  A couple of years later, when the American people had turned against the war, I argued that we shouldn't get a free pass for our "mistake."  We decided to go to war for oil, and the fact that we made a hash of it is irrelevant.  We killed people in large numbers.  We wrecked stuff that wasn't ours.  We stole things that didn't belong to us.  And except for those Americans who were killed or maimed fighting the war, we never had to pay any consequences.

So right though I was, there's really no warm glow.

With Friends Like

Shaun Donovan, Secretary of Housing and Urban Development, homeowners in distress don't need any enemies.  One does have to credit the ingenuity of the TBTF banks, however.  It's as though they hired a bunch of former radicals, who spent their younger years thwarting various government agencies and private businesses, to figure out how to go after the people they once worked to help.

But this one isn't all that new.  It's one of the strategies the banks have used for awhile in California to part people from their houses.  And the bank negotiators did a good job--they simply didn't note that they often held second mortgages that they could write off, then claiming that they had modified a mortgage.  I'd feel sorry for the government negotiators, but for the fact that I think they knew exactly what they were doing.

BTW, Neil Barofsky's book, Bailout, has a short and well-written analysis of HAMP, showing how it was designed to help the banks and screw homeowners in distress.  HUD was involved in designing that one too.

Not Damn Likely

Housing Wire has a piece this morning on the declining number of foreclosures in California, claiming that the lenders are going to switch from non-judicial foreclosure to judicial foreclosure because of the passage of the Homeowner's Bill of Rights.  Uh, huh.  In California.  Not damn likely.  No lender is going to want to spend five years in court to foreclose on a property worth $200K.  What's more likely is that lenders will do more short sales, even if they have to take a big haircut on the price, as judicial foreclosure only makes sense when the property owner has sufficient resources to be worth suing.  And judicial foreclosure would require that lenders have their paperwork in better order than the Homeowner Bill of Rights does.  Most defaulting homeowners don't have enough in resources to be worth the trouble, and would just go bankrupt to get out from under the judgment.  The lender then would pay a lot of money to get very little.

It's likely that (a) foreclosures are falling anyway, just because so many people have already lost their homes, and fewer homeowners are in danger of default, and (b) the lenders have to do a bit more work to foreclose, and have to do a different calculation to determine whether a short sale is a better option.

E-Filing

I'm not going to e-file my taxes.  Our taxes are simple.  We don't need to pay someone, or a service, and using the fillable forms takes longer than just writing the stuff down.  You have to pay to get someone to do the math for you, and I have a calculator.  If they want people to e-file, they should have a free form that does the math for you.  Until they do, they get a paper form from me.

Something I Missed

I'm so embarrassed to have missed this article.  What it points up that is important is that the disproportionate effect of the foreclosure crisis in non-white communities wasn't the result of investments by minority owners, but by white real estate speculators decimating non-white communities.  The authors looked at foreclosures in white and African American neighborhoods in Louisville, Kentucky.  What they found was that, controlling for income and so on, foreclosures affecting homeowners were pretty evenly distributed.  But when they looked at African American communities, they found that the higher foreclosure rate was the result of white investors buying up rentals and then, of course, giving them up when the housing bubble popped.  After all, as I noted in my other blog, the investor wasn't giving up his home, but someone else's.

So this video isn't exactly right.  The video should show the "respectable" (read: white?) family buying an investment property in someone else's neighborhood, and then defaulting on the property when its price collapses.  Had this been clearer, economists and politicians might have looked at what could be done to protect those neighborhoods from the "life after people" landscape that some of them have suffered.  Local governments could have bought the properties, kept the tenants in place, and limited the damage.  Instead they left the communities to weather the storm alone, and chose not to understand who was really responsible.

Leaving California

One of the examples of the complete lack of numeracy on the part of the population is the assertion that high-income people will leave California to escape our tax code.  They'll move to Nevada or Texas or Florida.  There's no evidence of this, and quite a lot against it, but people argue this all the time.  And people believe it--because they can't count.  I mean, we're looking at people who have adjusted gross incomes of $1 million or more.  The tax increase passed by voters in November would raise their taxes one percent.

Now let's do the arithmetic.  What is one percent of a million dollars?  Let's do this the easy way.  Ten percent of a million dollars is $100,000, which you get by simply dropping one of the zeroes.  You're getting the idea, right?  One percent of that is (hint: drop off another zero), yup, $10,000.  That's a lot of money if you make the median income here, about $50,000.  In fact, that's twenty percent of your income.  But if you make $1 million, it's chump change.  You certainly aren't going to starve to death.  Or not be able to buy another yacht.

So if you want to move to Nevada or Texas or Florida over $10,000, well, have a good life.