The only war worth fighting is a class war.

Select Page

How subprime player Carrington Investments is milking a housing crisis it helped create.

Back before the housing bubble burst, sending America’s economy into a tailspin, hedge fund manager and former CitiGroup banker Bruce Rose was marketing himself as the guy who single-handedly invented subprime mortgage-backed securities. Indeed, Carrington Investment Partners, part of a cluster of related companies founded by Rose, competed with the big investment banks to package and sell mortgage debt to investors. Now Rose and his companies are positioning themselves to feed off the tail end of the meltdown their business practices helped create, joining a foreclosure-to-rental trend that experts say could hurt homeowners even more.

Earlier this year, Carrington announced a partnership with another hedge fund to buy nearly half a billion dollars worth of foreclosed single-family homes and convert them into rental properties. Carrington is by no means the only one doing this. Silicon Valley-based private equity firm GI Partners is investing more than $1 billion in similar ventures. Other foreclosure-to-rental players, according to Bloomberg, include Starwood Capital Group, which owns the Westin hotel chain, the billionaire media magnate Sam Zell, and Apollo Investment Management—the New York buyout firm led by the billionaire Leon Black.

While renting out houses has typically been the province of mom-and-pop landlords, it should come as no surprise that Wall Street wants in. For years, a glut of foreclosures has suppressed home prices even as tighter lending standards and a sluggish economy have kept many buyers away. Banks, meanwhile, still sit on huge “shadow” inventories of foreclosed and abandoned properties, which means fewer places for people to live. The result of all this is a red-hot rental market—primed for speculation.

Federal regulators see the foreclosure-to-rental frenzy as a way to resuscitate the moribund housing market. In February, the Federal Housing Finance Agency announced a pilot program to sell discounted batches of Fannie Mae-owned homes to large investors in six major urban areas on the condition that the buyers lease out the properties. Advocates claim the program will give blighted properties a makeover and provide displaced homeowners with more rental options. “If you are a distressed family coming off of a foreclosure, the last thing you need is escalating rental rates,” Rick Sharga, executive vice president of Carrington Mortgage Holdings, told the trade publication Housing Wire last month.

Read full article →