cash for homes: policy implications of an investor-led housing recovery

7/30/2019 Cash for Homes: Policy Implications of an Investor-Led Housing Recovery

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1 Center or American Progress | A Guide to Investors and the Housing Recovery

Cash for Homes:

Policy Implications of anInvestor-Led Housing RecoveryBy Sarah Edelman September 5, 2013

Across he counry, invesors are aking advanage o he naions oreclosure crisis o

purchase homes a bargain prices, oen beaing ou poenial homeowners who remain

sidelined. In July, cash-on-hand invesors bough abou 55 percen o he homes sold in

Las Vegas1

and numerous properies in oher major meropolian areas such as Miami,Phoenix, and Prince Georges Couny, Maryland, a suburb o Washingon, D.C.

Invesors can play a key role in a housing recovery. By absorbing excess invenory, hey

esablish a oor or home prices and jumpsar appreciaion. Responsible invesors can

also oer qualiy, aordable renal opporuniies o amilies who may be locked ou o

homeownership due o oreclosure or los wealh rom he recession.

Bu while hey can suppor communiies, irresponsible invesors can also desroy hem

by allowing properies o si empy, declining o bring renal properies up o code, and

neglecing enans needs in insances where he home is occupied. Addiionally, inves-ors ha buy large quaniies o properies in a single area can cause prices o overhea

and increase marke volailiy. Conversely, i insiuional invesors ollowing a se

business plan sell numerous properies in he same ime rame, prices in hose neighbor-

hoods could decline again.

Given invesors powerul impac on he housing marke, is imporan ha policymak-

ers monior invesor aciviies o limi heir possible negaive impacs. As he naion

aces a new, larger, wealhier, and more sophisicaed generaion o invesors, he need

or oversigh has never been greaer.

For he rs ime, insiuional invesors are enering he housing marke in an organized

and signican way, purchasing ens o housands o homes across he counry as par o

a new scatered-sie, single-amily-renal asse class. Insiuional and individual inves-

ors alike are moving away rom rehabiliaing and ipping properies quickly. Insead,

hey are increasingly pursuing a buy-and-hold sraegy in which hey ren he propery

or a number o years in order or i o appreciae and hen sell i.


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Alhough his secor is relaively small, analyss expec ha he new class o renals will

grow ino a $100 billion indusry in he coming years.2 Indeed, TeWall Street Journal

repors ha Deusche Bank may soon begin selling securiies backed by renal paymens

rom properies owned by insiuional invesors.3 Such an innovaion will propel his

indusrys growh even more.

o ensure ha invesmen aciviy in he housing marke is socially and economicallyproducive, we mus examine invesmen rends and heir possible impacs on commu-

niies and he economy.

I is also imporan o consider he implicaions o a housing recovery buil primarily on

invesor-owned properies as opposed o homeowners. Invesors aloneeven i hey

ac responsiblycanno build a robus, long-lasing housing recovery. As research rm

CoreLogic said in a marke repor las monh, Going orward, coninued U.S. housing

marke recovery depends on rade-up and rs-ime homebuyers replacing cash buy-

ers.4 Our naion urgenly needs housing nance reorm o ge he morgage marke

working again or qualied borrowers.

Profile of investors: The who, where, and how

I is no unusual or invesors o buy inexpensive properies aer a housing downurn.

In ac, invesors are oen he rs buyers o reurn o he housing marke. Tis ime

around, however, we see a heavy volume o invesmen and a broader range o invesors

seizing on low home prices.

In addiion o he so-called mom-and-pop invesoran individual who may own ahandul or even dozens o properiesinsiuional invesors such as hedge unds;

privae equiy rms; real-esae invesmen russ, or REIs; and oher corporae eniies

are ocking o he marke. Tese groups are unded primarily by privae invesors and

are also increasingly accessing cheap capial rom banks o und heir purchases.5

Insiuional invesors may buy disressed properies a any poin along he oreclosure

pipeline. Tey buy real-esae-owned or bank-owned properies ha have compleed he

oreclosure process, and hey also purchase homes a oreclosure aucions and rusee

sales. Tey buy properies hrough shor-sales6which ake place when a lender allows

a homeowner o sell his or her home or less han he amoun o he morgage owed

and by purchasing porolios o disressed noes rom servicers.7 Now, invesors appear

o be broadening heir ooprin by also buying nondisressed homes, according o new

research rom CoreLogic.8


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Insiuional invesors such as he Blacksone Group L.P. are also working wih nancial

insiuions o creae new securiies based on renal paymens rom invesor-owned

homes.9 I he marke or hese securiies grows, insiuional invesors will be able o

access more capial and buy more properies o conver o renal homes, which would

uel demand or invesor-owned homes and may make i more lucraive or a morgage

holder o sell or oreclose on homeowners raher han keep hem in heir homes. Tese

ransacions would occur ouside he reach o a regulaory srucure ha oversees mor-gages, no cash purchases.

While relaively small compared o he $18.5 rillion housing marke,10 insiuional

invesors have spen more han $17 billion in recen years.11 Even as rising home prices

are apparenly cooling ineres among some leading insiuional invesors, policymak-

ers should coninue o pay atenion. Teir purchases, which have been argeed in

specic meropolian areas,12 could make a signican impac on local markes and

neighborhoods.13

Depending on he ype o invesor and he marke condiions wihin he ciy and regiono he purchase, invesor purchases o disressed homes look wildly dieren.

Silver Bay Realty Trust Corp.

A real-estate investment trust

Headquarters: Minnesota

Leadership: The CEO is David Miller, ormer U.S. Treasury Department

ocial and Goldman Sachs executive.

Mission: The company acquires distressed single-amily properties, man-

ages their renovation and maintenance, and leases the homes or rental

income and long-term capital appreciation. It became a publicly owned

company in December 2012, when it raised $245 million at its initial pub-

lic oering, which it used to buy more homes.14

Method: Silver Bay Realty Trust Corp., or SBRT, acquires properties

through oreclosure auctions, online auctions, and brokers.

Status: SBRT has acquired more than 75 percent o its portolio since

March 2012.15 By December 2012, it held 2,540 single-amily properties.

As o May 2013, it held 5,370 homes.17

Property management: In-house and subcontracted management

Summary of primary holdings:18

Location Properties Total percent of portfolio

Phoenix, AZ 1,276 28%

Tampa, FL 897 20%

Atlanta, GA 785 17%

Northern CA 372 8%

Las Vegas, NV 277 6%

Institutional investor at a glance


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Investor geography

For he mos par, insiuional invesors have been drawn o he ciies ha were hi

he hardes by he oreclosure crisis bu are bes posiioned o recover, such as Miami,

Phoenix, Las Vegas, and Alana.19 Blacksone has already invesed $4.5 billion20 in

purchases alreadyhe rms renal arm, Inviaion Homes, scooped up 1,380 homes in

Alana in one day his April, according o a CNBC repor.21

However, despie news headlines, every invesor is no armed wih millions o dol-

lars in capial. Individual invesors buying ewer han 10 properies are sil l driving he

majoriy o invesor purchases in many areas. In invesor-sauraed Miami-Dade Couny,

Florida, or insance, small and individual invesors purchasing ewer han 10 proper-

ies made abou wo-hirds o real-esae-owned, or REO, invesor purchases, according

o he New York Universiy Furman Cener or Real Esae and Urban Policy. 22 Also,

researchers say ha smaller invesors, raher han insiuional invesors, are playing

a more prominen role in local markes such as Fulon Couny, Georgia; Cuyahoga

Couny, Ohio; and San Diego and Oakland, Caliornia.23

In recen years, invesors o all kinds have shown ineres in harder-hi counies or

neighborhoods wihin srong meropolian areas. For insance, invesors purchased 42

percen o all oreclosed properies in Oakland beween 2007 and 2011, according o a

sudy by he Urban Sraegies Council.24 Approximaely one-hird o home purchases in

Prince Georges Couny, Maryland, las year were made in cash, presumably by inves-

ors, according o Te Washington Post.25 Invesing in hese areas oers invesors an

opporuniy o buy a low prices, atrac reners who wan o live in hese meropolian

areas, and sell when prices rise.

However, invesmen is no limied o he Sun Bel and hriving meropolian areas.

Individual invesors are also picking up properies in disressed, primarily low-income

neighborhoods in Rus Bel ciies such as Deroi and Cleveland.26

Investor strategies

Jus as here are many dieren kinds o invesors, sraegies or managing hese

invesmens also vary depending on local marke condiions and invesors sraegies.

Invesors may adap heir behavior depending on he exising opporuniies and limia-

ions wihin a given marke. I home prices are rising quickly enough or invesors o

earn a pro by reselling he propery in he shor erm, invesors may be more likely o

sell quickly. I home prices are suned bu he renal marke is srong, he invesor may

choose o ren unil prices recover. Te amoun o pro hey can earn on a propery

may also deermine how much hey will inves in mainenance and upkeep.


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Alan Mallach, a senior ellow a he Brookings Insiuion, has conduced exensive

research on privae invesor behavior and has creaed a ypology o classiy he mos

common invesor sraegies wihin he wo general buy-o-sell and buy-o-hold camps.27

Tis secion draws on Mallachs ramework o characerize invesmen paterns across

he counry.

Buy to sell

According o Mallach, mos prominen invesors in he buy-o-sell camp ip a home

ha is, buy and quickly sell i or a higher price wihou ever rening i. In he mid-2000s,

as he housing bubble grew, ipping was a common invesmen sraegy.28

Alhough ar less common oday, ipping has no disappeared. Te number o houses

bough and sold wihin six monhs increased by 12 percen in 2011 and coninued o

increase slighly in 2012, wih invesors earning $37,375 in pro on average on each

ransacion.29

In Oakland, Communiy Fund LLC, a company purchasing bank-ownedhomes, earned an average gross gain o $70,721 on he 120 properies i ipped in

2011.30 In Caliornia, ipping has reurned o he levels no seen since he housing-mar-

ke bubble o he early 2000s.31

I an invesor rehabiliaes a propery well and does no unduly inae prices, ipping can

be an imporan par o revializing disressed housing sock. On he oher hand, ippers

ha drive up prices by reselling dilapidaed properies wihou making any subsanive

changes or repairs can conribue o he urher deerioraion o he housing sock.

Buy to hold

In odays housing marke, many invesors are aking a buy-o-hold approach. Wih his

sraegy, an invesor buys single-amily homes a low prices and convers hem o renals

wih he plan o rening hem unil he marke improves or or a specied period o ime,

such as hree or ve years. Morgan Sanley expecs his marke o grow rom $17 billion

o $100 billion in he coming years.32

Marke condiions oen aec how well invesors mainain hese renal unis. Invesors

ha do no believe hey can earn enough hrough he renal paymens or resale o cover

mainenance and rehabiliaion coss, or insance, may be less likely o ake good care

o heir properies.33 And in some markes, here are easy, low-cos alernaive pahs o

pro. In Deroi, or insance, an invesor can urn a pro in jus a ew years by buying

low, rening he propery wih litle mainenance, and dodging axesas is common.34


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Mos o he insiuional invesors ha acively purchase single-amily homes oday

plan o ren hem or several years.35 Wih more access o capial, hese invesors may be

beter equipped o handle propery managemen han mom-and-pop invesors. Ye he

exen o which invesors renovae or mainain a propery may hinge on wheher hey

believe hey can recoup he cos hrough he renal paymens and evenual resale.

Dumping underperforming properties

Even invesors ha iniially buy a propery o hold may abandon a propery i hey

realize ha i will no be proable. While daa are no available on he requency o

propery abandonmen by invesors, research suggess ha he pracice may be airly

common. When an invesor buys properies in bulk, he invesor may discard he less

economical properies.36 In hese cases, he propery once again becomes vacan, urher

delaying he neighborhoods recovery.

Potential adverse consequences for the

housing market and neighborhood stabilization

Te inux o invesors ino he housing marke over he pas wo years has helped buoy

he housing marke, aid underwaer homeowners, and allow some neighborhoods o

begin moving orward. Policymakers mus pay close atenion, however, o he ways in

which his invesmen may impac he housing marke and he neighborhoods mos

aeced by new propery owners.

Are sharp increases in home prices sustainable?

While home prices increased 12 percen naionally over he pas year, home prices have

increased by more han 20 percen in San Francisco, Phoenix, Las Vegas, and Alana

and hovered around 15 percen in oher key meropolian areasraising ears abou

unsusainable price increases in some pars o he counry.37

Fich Raings sounded he alarm over he rapid price increases, reporing ha recen

home price gains recorded in several residenial markes are oupacing improvemens

in undamenals.38 Furhermore, analyss a Fich believe ha he growh is being pro-

pelled by insiuional money.39

In Phoenix and Las Vegas, which are among he meropolian areas wih he highes

price increases las year, invesors helped uel he growh. In Phoenix, abou 45 percen

o he homes purchased in July 2013 were bough wih cash, which is a proxy or mea-

suring invesor aciviy.40 In Las Vegas, he gure was close o a sunning 55 percen.41


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In some places, however, he earlies invesors, such as Carringon Holding Company

and Och-Zi Capial Managemen Group LLC, are already leaving he marke and

looking o sell heir porolios aer disappoining iniial reurns.42 Colony Capial LLC,

anoher leading invesor, has lled jus more han hal o he 9,931 homes i purchased.43

I invesor aciviy is conribuing o possible home-price inaion, hese local markes

are suscepible o sudden price declines when invesors exi. A sudden deparure byinvesors would no only hur housing prices bu also deal a second blow o already-

ragile neighborhoods.

Will investors be good landlords?

While invesor-owned properies may lead o a greaer availabiliy o renal unis,

paricularly in neighborhoods wih sparse renal opions, amilies and neighborhoods

will no reap he benes o hese new opions unless he homes are mainained. As

described earlier, individual invesors have a mixed record as landlords ha varies wihlocal marke characerisics.

While we can speculae, we do no know how well insiuional invesors will are as

landlords and neighbors. According o Te Wall Street Journal, invesors and analyss

have raised concerns abou how quickly rms have purchased housands o homes, and

wheher hey have he managemen rack record

and experise o oversee he mainenance o prop-

eries across he counry.44

Managing scatered-sie renal is likely o be morecosly and more challenging han managing a ypi-

cal muliamily aparmen building. Scatered-sie

renal unis are more geographically dispersed and

may require greaer safng o secure he proper-

ies, mainain hem, and marke hem when hey

become vacan.46 Tere may also be muliple layers

o propery-managemen subconracors beween

he invesors ha own he propery and he enan

who lives in he propery.47 Tis disance could

make i harder or an invesor o ensure qualiy

propery managemen and or a enan o hold an

invesor accounable or propery condiions.

[O]wner occupancy rates on REO are

alling. Communities have justifable

concerns about that. There is a clear

institutionalized preerence or investor

transactionsthey are easier to do and

easier to leverage to dispose o REO.45

Brian Hurley, ormer president

o New Vista Asset Management


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Or he invesor may leave he propery managemen o he enans, raising oher con-

cerns. In ampa, Florida, or example, a managemen company ha serves homeowner

associaions old Te ampa ribune ha invesors seem o be relying on heir enans

o care or he homes once hey move in, and enans, unorunaely, aren complying

enough.48 Some homeowners associaions in he ampa area are now conemplaing

new limis on reners.49 Tis lack o qualiy propery managemen may urher negaive

assumpions abou reners.

Are investors crowding out too many potential homeowners?

Communiy advocaes and realors complain ha invesor cash purchases oen crowd

ou poenial owner-occupan buyers who require nancing.50 In some cases, owner-occu-

pans have rouble accessing credi, or invesors ush wih cash are simply willing o bid

higher. In oher cases, sellers who wish o avoid he appraisal process preer cash buyers. 51

Pushing ou poenial homeowners who will live and ake roo in a neighborhood canhinder neighborhoods sruggling o recover rom he oreclosure crisis by prevening

hese communiies rom reclaiming los wealh. According o he Pew Research Cener,

Arican American and Laino amilies los 53 percen and 66 percen o heir wealh,

respecively, rom 2005 o 2009 due o predaory lending and he subsequen reces-

sion.52 I neighborhood residens were o purchase homes a new, lower prices and say

in he neighborhood, he equiy would conribue o ha amilys asses and likely be

deployed close o home. Te rms and individuals buying disressed properies, how-

ever, are ypically no locaed in he communiies where hey inves, so when invesors

evenually resell hese properies, i is likely ha hey will ake heir wealh wih hem.

Whas more, i is no clear ha hose who inves in houses will show an equal commi-

men o he surrounding neighborhoods. Owner-occupans, or example, have a vesed

ineres in neighborhood ameniies such as good schools, parks, and playgrounds. As a

resul, owner-occupans end o be more civically engaged han reners.53 While inves-

ors may recognize ha ameniies will improve heir properys value, hey may no be as

engaged in he uure o he neighborhood.

om Deyo, NeighborWorks America depuy direcor or naional iniiaives, reeced

hese concerns in an inerview wihMother Jones las year, saying, Tese invesmens in

renal homes need o be seen as invesmens in communiies, no jus as daa poins on

some spreadshee.54


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Looking forward: How to build a sustainable housing recovery

Invesors can cerainly play a role in he U.S. housing recovery. Indeed, in some local

housing markes hey have already helped hal and even reverse rapid price declines.

Policymakers mus monior and manage invesors o ensure ha hey are acing respon-

sibly and playing a sabilizing role in communiies.

Bu invesor purchases alone canno susain a long-erm housing recovery. In order or a

housing recovery o las, i mus be buil on homeowners who are more likely o remain

even i invesors exi he marke in search o more aggressive reurns. Wih ha in mind,he Cener or American Progress suggess he ollowing sraegies or insuring a las-

ing housing recovery ha srenghens he naional economy while creaing aordable

homeownership opporuniies or qualied buyers.

Step 1: Help homeowners stay in their homes

Te housing recovery remains an absracion or he more han 2 million households

sill a risk o oreclosure in he Unied Saes.61 When possible, prevening hese

oreclosures is he rs sep oward a srong housing recovery. Allowing more o hese

amilies o lower heir monhly morgage paymens hrough renancing or principal

reducion could help millions o amilies avoid oreclosure and likely save money or he

U.S. governmen and lenders. CAP commends he Obama adminisraion or renewing

he Home Aordable Renance Program and Home Aordable Modicaion Program,

which are criical oreclosure-prevenion ools. CAP also urges he Federal Housing

Finance Agency o allow homeowners wih governmen-backed morgages o secure

more-aordable monhly paymens hrough principal orgiveness.

The recession and housing crisis hit Prince Georges County especially

hard. In 2011, 38 percent o Maryland homes in the oreclosure pipeline

were located in Prince Georges County.55 More than hal o homeowners

in the county still owe more on their homes than they are worth.56

Prior to the housing crisis, Prince Georges County had a reputation as an

aordable area or amilies and was known as one o the countrys most

prominent middle-class, majority-Arican American communities.57 Part o

its success was built on higher-than-average homeownership rates.58 But

ater predatory lenders heavily targeted the county, it has suered mightily

during the oreclosure crisis. Foreclosure rates in Prince Georges County

have persistently been among the highest in the Washington, D.C., region.

Yet as a region bordering Washington, D.C., the county is also close to a

thriving metropolitan center and a strong rental market, making it ripe

or investment. In many parts o Prince Georges County, investors can bu

low, confdent that they will be able to rent out the property until they s

it or a higher price down the road. Last year, investors made about one-

third o home purchases in Prince Georges County.59 Home prices have

also increased by 20 percent over the past yeara larger increase than

almost anywhere else in the region.60

As ewer amilies build wealth through homeownership in the county an

wealth instead transers to investors, Prince Georges County may look

very dierent in the coming years.

Community spotlight: Prince Georges County, Maryland


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Step 2: Level the playing field for owner-occupants

and mission-driven organizations

Households and communiy groups ha are unable o access credi are sruggling o

compee wih cash invesors o buy homes. Wih a more level playing eld, buyers who

are more rooed in he communiy han he average invesor would be beter posi-

ioned o own properies in heir neighborhoods. Encouraging more local buyers maybe a less risky neighborhood sabilizaion sraegy han relying on ouside invesors

ha are less likely o say.

Some o he ools designed o help amilies and communiy groups compee wih

invesors or bank-owned homessuch as rs look programsare less useul now

ha ewer disressed homes are making i all he way hrough he oreclosure process.

Insead, banks are unloading underperorming properies eiher by selling he underly-

ing morgage or selling he home via a shor sale, or rusee sale. I is harder or owner-

occupans o compee in hese venues, which require a lo o capial.

Similarly, many insiuional invesors are buying large porolios o disressed mor-

gages direcly rom nancial insiuions or hrough ederal sales o nonperorming

asses.62 Owner-occupans do no have access o hese sales and i is very challenging

or communiy groups o compee in hese arenas. In he Federal Housing Finance

Agencys rs REO bulk sale las year, communiy groups ailed o win in a single pool.63

In uure bulk sales o nonperorming asses, governmenal agencies should give

subsanial preerence o mission-driven organizaions ha will work o keep exising

homeowners in heir homes or resell he propery o an owner-occupan a an aordable

price. Federal banking regulaors should also provide closer scruiny o he bulk sales odisressed morgages carried ou by privae nancial insiuions o make sure he eni-

ies purchasing hese asses are well qualied o service he porolio.

Addiionally, he Federal Housing Adminisraion, or FHA, could help nonpro

aordable-housing and communiy-developmen groups mee nancing challenges by

expanding heir access o rehabiliaion morgage insurance. Te FHAs rehabiliaion

morgage insurance, known as is 203(k) program, allows homebuyers o include reno-

vaion and repair coss in heir morgage. In recen years, however, his criical nancing

has been largely unavailable o nonpros because o adminisraive hurdles, including

unclear underwriing crieria. Te FHA should work ogeher wih lenders and he

aordable-housing communiy o use he exising 203(k) program and make program

improvemens so ha responsible, well-capialized nonpros can use his nancing o

help rebuild neighborhoods.


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Step 3: Monitor and manage investors

Ensuring ha invesors ake care o heir properies is key o leveraging invesmen or he

bene o he communiy raher han o is derimen. In 2010, researchers a PolicyLink

and he Local Iniiaives Suppor Corporaion, or LISC, ook an invenory o approaches

a he sae and local levels o hold invesor-owners accounable and shared proacive

sraegies or srenghening local code enorcemen and improving invesor behavior. 64

Tese approaches include renal regisraion and licensing programs ha help ciies

beter rack invesor owners and heir properies because, hrough regular inspecions

o licensed properies, local governmens can quickly deec problem landlords. Tese

sraegies or racking and managing invesor-owned properies deserve atenion. As

communiies coninue o experience high raes o invesor ownershipand especially

as relaively unesed insiuional invesors ener communiieslocal governmens

mus closely monior invesor behavior.

Te ederal governmen should also publish assessmens o invesors ha have pur-chased properies hrough disressed-asse sales. In 2012, he Federal Housing Finance

Agency, or FHFA, sold bulk pools o REO properies ha comprised abou 1,750

homes o invesors in Chicago, Las Vegas, Los Angeles, Phoenix, and pars o Florida.65

So ar, he agency has no released any reporing on he perormance o he invesors

and hese pools. Similarly, he FHA has held muliple aucions o sell disressed FHA

morgagesselling more han 45,000 loans since Sepember 2012bu has no posed

ollow-up perormance daa.66

I is crucial or he FHA and he FHFA o careully monior hese pools or compliance

wih he erms o he sale and assess he impac o insiuional invesors on neighbor-hoods. Te agencies should hen release ha inormaion o he public o increase

ransparency and hold invesors accounable.67

Some o he invesors ha purchased properies hrough he FHFA aucions, such as

insiuional invesor Colony Capial LLC, have a large naional presence ha exends

beyond he FHFA pilo program.68 Moving orward, he FHFA should share more o

he lessons learned rom he pilo program o help sae and ederal policymakers beter

anicipae challenges ha may arise in he broader REO marke.

Step 4: Get the mortgage market working again for Americas families

Ulimaely, a robus and lasing housing-marke recovery will require a resurgence

o owner-occupan homebuyers. Ye he abiliy o secure a morgage or a home has

become elusive o many Americans.


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Righ now, he ypical borrower approved or a convenional morgage has a FICO

score o 75569 and makes a 20 percen down paymen on a home. Given ha nearly wo-

hirds o Americans have credi scores below 75070 and ha i akes he average amily 20

years o save or a 10 percen down paymen,71 he abiliy o buy a home is increasingly

limied o he wealhies o Americas amilies.

Te secondary morgage marke in which invesors buy morgages, package hem inosecuriies, and sell hem o oher invesors plays a signican role in wheher credi is

accessible and aordable o amilies. Lenders are less likely o make a morgage loan i

hey are no conden ha hey can sell i on he secondary marke. Righ now, he sec-

ondary marke is suppored in large par by Freddie Mac and Fannie Mae, which were

aken over by he governmen and remain in conservaorship. Te conusing objecives

o he conservaorship and invesor uncerainy have kep credi very igh, especially

or rs-ime homebuyers. In he rs quarer o 2013, 76 percen o all morgages

purchased by Fannie Mae and Freddie Mac were made o homeowners who renanced

heir exising morgages, as opposed o nancing reners o purchase heir homes.72

Te naion urgenly needs housing nance reorm o make sure ha we have a well-

uncioning secondary marke ha can serve all communiies.

Conclusion

Invesors can and should be par o our naions housing recovery, bu here are serious

risks associaed wih leaving neighborhood recovery in he hands o privae invesors.

In order o make sure neighborhoods reap he benes o his new invesmen, we mus

make sure invesors are well moniored and managed a he local level. As bigger, rela-ively unesed insiuional invesors ener he marke, local ofcials should pay paricu-

lar atenion o how well hey care or heir properies. Federal regulaors mus also pay

atenion o he aciviies o insiuional invesors, paricularly i a new marke develops

or securiies backed by hese invesor-owned properies.

We mus also redouble eors o build a robus housing recovery ha will allow commu-

niies and amilies he opporuniy o rebuild. Te housing marke will no ully recover

unil we ully address he oreclosure crisis and x he morgage marke so ha credi-

worhy amilies can once again buy homes.

Sarah Edelman is a Policy Analyst with the Housing team at the Center for American Progress.

Tanks to Jessica Kaushal for her research assistance.


13/15


Endnotes

1 54.5 percent o home purchases in Las Vegas in July 2013were made in all cash. See Bill McBride, Lawler: Table oDistressed Sales and Cash buyers or Selected Cities in July,Calculated Risk Finance & Economics, August 21, 2013,available at http://www.calculatedriskblog.com/2013/08/lawler-table-o-distressed-sales-and.html.

2 Alejandro Lazo and Andrew Tangel, Wall Street rms be-come landlords in buy-to-rent industry, Los Angeles Times,July 31, 2013, available at http://www.latimes.com/busi-ness/la--wall-street-landlords-20130801,0,4294406.story.

3 Jeannette Neumann, Blackstone, Deutsche Bank in Talks toSell Bond Backed by Home Rentals,The Wall Street Journal,July 30, 2013, available at http://online.wsj.com/article/SB10001424127887324170004578638093802889384.html.

4 Sam Khater, Real Estate and the Impac t o Cash Sales,The MarketPulse 2 (7) (2013): 36, available at http://www.corelogic.com/downloadable-docs/MarketPulse_2013-July.pd.

5 John Gittelsohn and Heather Perlberg, Deutsche BankLeading Wall Street Rental Loans: Mortgages, Bloomberg,June 17, 2013, available at http://www.bloomberg.com/news/2013-06-17/deutsche-bank-leading-wall-street-rental-loans-mortgages.html.

6 Khater, Real Estate and the Impac t o Cash Sales.

7 Ted Cornwell, Bulk Sales Dont Loom So Large, NationalMortgage News, February 11, 2013, available at http://www.nationalmortgagenews.com/blogs/hearing/bulk-sales-do-not-loom-so-large-1034481-1.html; Brian Hurley, telephoneinterview with author, August 2013.

8 Khater, Real Estate and the Impact o Cash Sales.

9 Neumann, Blackstone, Deutsche Bank in Talks to Sell BondBacked by Home Rentals.

10 Federal Reserve, B.100 Balance Sheet o Households andNonprot Organizations, June 6, 2013, available at http://www.ederalreserve.gov/releases/z1/current/z1r-5.pd.

11 Heather Perlberg and John Gittlesohn, Blackstone Raises$5 Billion Rental Bet With Lending Arm, Bloomberg, July 8,2013, available at http://www.bloomberg.com/news/2013-

07-08/blackstone-raises-5-billion-rental-bet-with-lending-arm.html.

12 Sam Khater, The Rise o Institutional Investors and theDecline o REOs, The MarketPulse 2 (3) (2013): 35.

13 Nathaniel Popper, Behind the Rise in House Prices, WallStreet Buyers, DealBook, June 3, 2013, availabl e at http://dealbook.nytimes.com/2013/06/03/behind-the-rise-in-house-prices-wall-street-buyers/?_r=0.

14 John Gittelsohn and Heather Perlberg, Blackstone Rushes$2.5 Billion Purchase as Homes Rise, Bloomberg, Janu-ary 9, 2013, available at http://www.bloomberg.com/news/2013-01-09/blackstone-steps-up-home-buying-as-prices-jumpmortgages.html; Patrick Kennedy, Silver BayRealty Trust IPO raises $245 million, Star Tribune, December14, 2012, available at http://www.startribune.com/busi-ness/183592621.html.

15 Silver Bay Realty Trust Corp., Securities and ExchangeCommission lings, Form S-11, March 11, 2013, availableat http://seclings.nasdaq.com/lingFrameset.asp?FileName=0001104659-13-019347.txt&FilePath=\2013\03\11\&CoName=SILVER+BAY+REALTY+TRUST+CORP.&FormType=S-11%2FA&RcvdDate=3%2F11%2F2013&pd=.

16 Kennedy, Silver Bay Realty Trust IPO raises $245 million.

17 Mark Heschmeyer, Single-Family Rental REITs ContinueTapping Capital Markets, CoStar Group, May 22, 2013, avail-able at http://www.costar.com/News/Article/Single-Family-Rental-REITs-Continue-Tapping-Capital-Markets/148773.

18 Silver Bay Realty Trust Corp., Portolio Overview, Keee,Bruyette & Woods 2013 Mortgage Finance Conerence,March 2013, available at http://investors.silverbayrealty-trustcorp.com/Cache/1500049868.PDF?Y=&O=PDF&D=&FID=1500049868&T=&IID=4335231;Silver Bay RealtyTrust Corp., Securities and Exchange Commission Form10-Q, March 31, 2013, available at http://www.sec.gov/Archives/edgar/data/1557255/000110465913041474/a13-8933_110q.htm#CondensedConsolidatedStatementOO_150444.

19 Khater, The Rise o Institutional Investors and the Decline oREOs.

20 John Gittelsohn, An Early Investor Says Buy-to-Rent Hous-ing is Over, Bloomberg Businessweek, June 6, 2013, availableat http://www.businessweek.com/articles/2013-06-06/an-early-investor-says-buy-to-rent-housing-is-over.

21 Kayla Tausche, Blackstones Housing Bet Swells to $4.5 Bil-

lion, CNBC, May 2, 2013, available at http://www.cnbc.com/id/100701436.

22 Ingrid Gould Ellen, Josiah Madar, and Mary Weselcouch,The Foreclosure Crisis and Community Development: Ex-ploring REO Dynamics in Hard-Hit Neighborhoods. WorkingPaper (New York University Furnam Center or Real Estateand Urban Policy, 2013), available at http://urmancenter.org/les/publications/REOHardHitWorkingPaperApril2013.pd.

23 Dan Immergluck, The Role o Investors in the Single-FamilyMarket in Distressed Neighborhoods: The Case o Atlanta.Working Paper (Harvard Joint Center on Housing Studies,2013), available at http://www.jchs.harvard.edu/sites/jchs.harvard.edu/les/w13-2_immergluck.pd; Frank Ford, tele-phone interview with author, Washington, D.C., April 2013.

24 Steve King, Who Owns Your Neighborhood? The Role oInvestors in Post-Foreclosure Oakland, Urban StrategiesCouncil, June 28, 2012, available at http://ww w.inoalamed-

acounty.org/images/stories/Reports/WhoOwnsYourNeigh-borhood_Report.pd

25 Annys Shin, A wave o oreclosures then a land rush inPrince Georges, The Washington Post, April 1, 2013, avail-able at http://articles.washingtonpost.com/2013-04-01/local/38187836_1_auctioneer-speculators-prices.

26 Alan Mallach, Meeting the Challenge o Distressed PropertyInvestors in Americ as Neighborhoods (New York: LocalInitiatives Support Corporation, 2010), available at http://www.stablecommunities.org/sites/all/les/library/1228/distressed-property-investors-mallach.pd; Chris Christo,Detroit Housings or Sale, and Glob al Investors Want In,Bloomberg Businessweek, January 24, 2013, available athttp://www.businessweek.com/articles/2013-01-24/detroit-housings-or-sale-and-global-investors-want-in.

27 Mallach, Meeting the Challenge o Distressed PropertyInvestors in Americas Neighborhoods.

28 Andrew Haughwout and others, Real Estate Investors, theLeverage Cycle, and the Housing Market Crisis (New York:Federal Reserve Bank o New York, 2011), available at http://www.newyorked.org/research/sta_reports/sr514.pd.
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78638093802889384.htmlhttp://online.wsj.com/article/SB10001424127887324170004578638093802889384.htmlhttp://www.latimes.com/business/la-fi-wall-street-landlords-20130801,0,4294406.storyhttp://www.latimes.com/business/la-fi-wall-street-landlords-20130801,0,4294406.storyhttp://www.calculatedriskblog.com/2013/08/lawler-table-of-distressed-sales-and.htmlhttp://www.calculatedriskblog.com/2013/08/lawler-table-of-distressed-sales-and.html


14/15


29 Chris Taylor, The New Rules o House Flipping, Re-uters, April 18, 2013, available at http://www.reuters.com/article/2013/04/18/us-housing-ipping-idUSBRE-93H0OI20130418.

30 King, Who Owns Your Neighborhood?

31 Jennier Medina and Katharine Seelye, As Home SalesHeat Up Again, Buyers Must Resort to Cold Cash,The NewYork Times,June 8, 2013, available at http://www.nytimes.com/2013/06/09/us/cash-is-ueling-quick-home-sales.html?pagewanted=all.

32 Lazo and Tangel, Wall Street rms become landlords in buy-to-rent industry.

33 Mallach, Meeting the Challenge o Distressed PropertyInvestors in Americas Neighborhoods.

34 Alan Mallach, Renters, Homeowners & Investors, presenta-tion at the Federal Reserve Conerence, February 26, 2013,excerpt available at http://www.ederalreserve.gov/newsev-ents/conerences/Mallach-20130226.pd.

35 David Dayen, Your New Landlord Works on Wall Street, TheNew Republic, February 12, 2013, available at http://www.newrepublic.com/article/112395/wall-street-hedge-unds-buy-rental-properties.

36 Immergluck, The Role o Investors in the Single-FamilyMarket in Distressed Neighborhoods.

37 S&P Dow Jones Indices, Home Prices Continue to Increase

in May 2013 According to the S&P/Case-Shiller Home PriceIndices, Press release, July 30, 2013, available at https://www.spice-indices.com/idples/spice-assets/resources/public/documents/19529_cshomeprice-release-0730.pd?orce_download=true.

38 Fitch Ratings, US Residential Recovery Too Fast in SomeLocal Economies, Press release, May 28, 2013, available athttp://www.tchratings.com/gws/en/tchwire/tchwirearti-cle/US-Residential-Recovery?pr_id=792238.

39 Popper, Behind the Rise in House Prices, Wall Street Buyers.

40 McBride, Lawler: Table o Distressed Sales and Cash buyersor Selected Cities in July.

41 Ibid.

42 Matthew Goldstein and Jennier Ablan, Exclusive: Och-Zi hedge und lo oks to exit landlord business, Reuters,October 17, 2012, available at http://www.reuters.com/

article/2012/10/17/us-oreclosed-hedgeunds-idUSBRE89G-1TE20121017.

43 Bill Stoller, Single-Family REIT IPOs: Too Early or WallStreet?, The Motley Fool, June 25, 2013, available at http://beta.ool.com/45acpbullseye/2013/06/25/single-amily-reit-ipos-too-early-or-wall-street/37596/.

44 Neumann, Blackstone, Deutsche Bank in Talks to Sell BondBacked by H ome Rentals.

45 Community Development Department, Federal ReserveBank o Cleveland, Bankers Primer to Managing VacantResidential Property or Stable Neighborhoods (2012),available at http://www.clevelanded.org/community_de-velopment/publications/primer.pd.

46 Ivan Levi, Stabilizing Neighborhoods Impacted byConcentrated Foreclosures: Scattered-Site Rental Hous-ing Challenges and Oppor tunities (Washington and

Cambridge, Massachusetts: NeighborWorks America andHarvard Joint Center or Housing Studies, 2009), availableat http://140.247.195.238/sites/jchs.harvard.edu/les/w10-1_levi.pd.

47 Hurley, interview with author.

48 Michael Sasso, Homeowner groups wary o rental boom,The Tampa Tribune, July 28, 2013, available at http://tbo.com/news/business/homeowner-groups-wary-o-rental-boom-20130728/.

49 Ibid.

50 Ben Hallman, As Housing Markets Recover, Wall StreetBeats Families to Ho mes, HuPost Business, May 20, 2013,available at http://www.hufngtonpost.com/2013/05/20/housing-markets-wall-street_n_3281563.html.

51 Carolyn Said, Home buyers make cash oers in hot market,San Francisco Chronicle, June 10, 2013, available at http://www.schronicle.com/realestate/article/Home-buyers-make-cash-oers-in-hot-market-4585115.php; NationalAssociation o Realtors, Low Valuation in Home AppraisalsCausing Steady Level o Contract Gl itches, Press release,

October 10, 2012, available at http://w ww.realtor.org/news-releases/2012/10/low-valuation-in-home-appraisals-causing-steady-level-o-contract-glitches

52 Rakesh Kochhar, Richard Fry, and Paul Taylor, Wealth GapsRise to Record Highs Between Whites, Blacks, Hispanics, PewResearch Social & Demographic Trends, July 26, 2011, avail-able at http://www.pewsocialtrends.org/2011/07/26/wealth-gaps-rise-to-record-highs-between-whites-blacks-hispanics/.

53 Kim Manturuk, Mark Lindblad, and Roberto Quercia, Home-ownership and Civic Engagement in Low-Income UrbanNeighborhoods: A Longitudinal Analysis,Urban AfairsReview48 (5) (2012): 731760.

54 Josh Harkinson, Meet Your Hedge Fund Landlord,MotherJones, May 18, 2012, available at http://www.motherjones.com/politics/2012/05/carrington-hedge-und-oreclosure-rental.

55 Alex Kellogg, Racial Gap In Homeownership Widens In U.S.Slump, NPR, August 23, 2011, available at http://www.npr.org/2011/08/24/139877687/racial-gap-in-homeownership-widens-in-u-s-slump.

56 Shin, A wave o oreclosures then a land rush in PrinceGeorges.

57 Elhae Izadi, Five Factors Causing the Decimation o theBlack Middle Class, DCentric, July 11, 2011, available athttp://dcentric.wamu.org/2011/07/ve-actors-causing-the-decimation-o-the-black-middle-class/index.html.

58 Katrin B. Anacker, James H. Carr, and Archana Pradhan,Analyzing Foreclosures Among High-Income Black/AricanAmerican and Hispanic/Latino Borrowers in Prince GeorgesCounty, Maryland,Journal o the Housing Education andResearch Association 39 (1) (2012).

59 Shin, A wave o oreclosures then a land rush in PrinceGeorges.

60 Kathy Orton, Home prices rebounding in Prince Georges,Prince William, The Washington Post, August 12, 2013,available athttp://www.washingtonpost.com/business/economy/home-prices-rebounding-in-prince-georges-prince-william/2013/08/12/10e5a56-0380-11e3-a07-49ddc7417125_story.html.

61 CoreLogic, National Foreclosure Report (2013), availableat http://www.corelogic.com/about-us/researchtrends/national-oreclosure-report.aspx#.Uh9ugX8jPSg.

62 Hurley, interview with author.

63 Federal Housing Finance Agency, FHFA Statement on REOPilot Transactions, Press release, November 1, 2012, avail-able at http://www.ha.gov/webles/24609/REOColony.pd.

64 Sarah Treuhat, Kalima Rose, and Karen Black, WhenInvestors Buy Up the Neighborhood: Preventing Investor

Ownership rom Causing NeighborhoodDecline (Oakland,Caliornia: PolicyLink, 2010), available at http://www.poli-cylink.org/atf/cf/%7B97c6d565-bb43-406d-a6d5-eca3bbf35af0%7D/WHENINVESTORSBUYUPTHE-NEIGHBORHOOD.PDF; Mallach, Meeting the Challenge oDistressed Property Investors in Americas Neighborhoods.

65 Federal Housing Finance Agency, FHFA Announces PilotREO Property Sales in Hardest-Hit Areas, Press release,February 27, 2012, available at http://www.ha.gov/web-les/23403/REOPR22712F.pd.
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ORHOOD.PDFhttp://www.policylink.org/atf/cf/%7B97c6d565-bb43-406d-a6d5-eca3bbf35af0%7D/WHENINVESTORSBUYUPTHENEIGHBORHOOD.PDFhttp://www.policylink.org/atf/cf/%7B97c6d565-bb43-406d-a6d5-eca3bbf35af0%7D/WHENINVESTORSBUYUPTHENEIGHBORHOOD.PDFhttp://www.fhfa.gov/webfiles/23403/REOPR22712F.pdfhttp://www.fhfa.gov/webfiles/23403/REOPR22712F.pdfhttp://www.fhfa.gov/webfiles/23403/REOPR22712F.pdfhttp://www.fhfa.gov/webfiles/23403/REOPR22712F.pdfhttp://www.policylink.org/atf/cf/%7B97c6d565-bb43-406d-a6d5-eca3bbf35af0%7D/WHENINVESTORSBUYUPTHENEIGHBORHOOD.PDFhttp://www.policylink.org/atf/cf/%7B97c6d565-bb43-406d-a6d5-eca3bbf35af0%7D/WHENINVESTORSBUYUPTHENEIGHBORHOOD.PDFhttp://www.policylink.org/atf/cf/%7B97c6d565-bb43-406d-a6d5-eca3bbf35af0%7D/WHENINVESTORSBUYUPTHENEIGHBORHOOD.PDFhttp://www.policylink.org/atf/cf/%7B97c6d565-bb43-406d-a6d5-eca3bbf35af0%7D/WHENINVESTORSBUYUPTHENEIGHBORHOOD.PDFhttp://www.fhfa.gov/webfiles/24609/REOColony.pdfhttp://www.washingtonpost.com/business/economy/home-prices-rebounding-in-prince-georges-prince-william/2013/08/12/10e5a5f6-0380-11e3-a07f-49ddc7417125_story.htmlhttp://www.washingtonpost.com/business/economy/home-prices-rebounding-in-prince-georges-prince-william/2013/08/12/10e5a5f6-0380-11e3-a07f-49ddc7417125_story.htmlhttp://www.washingtonpost.com/business/economy/home-prices-rebounding-in-prince-georges-prince-william/2013/08/12/10e5a5f6-0380-11e3-a07f-49ddc7417125_story.htmlhttp://www.washingtonpost.com/business/economy/home-prices-rebounding-in-prince-georges-prince-william/2013/08/12/10e5a5f6-0380-11e3-a07f-49ddc7417125_story.htmlhttp://dcentric.wamu.org/2011/07/five-factors-causing-the-decimation-of-the-black-middle-class/index.htmlhttp://dcentric.wamu.org/2011/07/five-factors-causing-the-decimation-of-the-black-middle-class/index.htmlhttp://www.npr.org/2011/08/24/139877687/racial-gap-in-homeownership-widens-in-u-s-slumphttp://www.npr.org/2011/08/24/139877687/racial-gap-in-homeownership-widens-in-u-s-slumphttp://www.npr.org/2011/08/24/139877687/racial-gap-in-homeownership-widens-in-u-s-slumphttp://www.motherjones.com/politics/2012/05/carrington-hedge-fund-foreclosure-rentalhttp://www.motherjones.com/politics/2012/05/carrington-hedge-fund-foreclosure-rentalhttp://www.motherjones.com/politics/2012/05/carrington-hedge-fund-foreclosure-rentalhttp://www.pewsocialtrends.org/2011/07/26/wealth-gaps-rise-to-record-highs-between-whites-blacks-hispanics/http://www.pewsocialtrends.org/2011/07/26/wealth-gaps-rise-to-record-highs-between-whites-blacks-hispanics/http://www.sfchronicle.com/realestate/article/Home-buyers-make-cash-offers-in-hot-market-4585115.phphttp://www.sfchronicle.com/realestate/article/Home-buyers-make-cash-offers-in-hot-market-4585115.phphttp://www.sfchronicle.com/realestate/article/Home-buyers-make-cash-offers-in-hot-market-4585115.phphttp://www.huffingtonpost.com/2013/05/20/housing-markets-wall-street_n_3281563.htmlhttp://www.huffingtonpost.com/2013/05/20/housing-markets-wall-street_n_3281563.htmlhttp://tbo.com/news/business/homeowner-groups-wary-of-rental-boom-20130728/http://tbo.com/news/business/homeowner-groups-wary-of-rental-boom-20130728/http://tbo.com/news/business/homeowner-groups-wary-of-rental-boom-20130728/http://140.247.195.238/sites/jchs.harvard.edu/files/w10-1_levi.pdfhttp://140.247.195.238/sites/jchs.harvard.edu/files/w10-1_levi.pdfhttp://www.clevelandfed.org/community_development/publications/primer.pdfhttp://www.clevelandfed.org/community_development/publications/primer.pdfhttp://beta.fool.com/45acpbullseye/2013/06/25/single-family-reit-ipos-too-early-for-wall-street/37596/http://beta.fool.com/45acpbullseye/2013/06/25/single-family-reit-ipos-too-early-for-wall-street/37596/http://beta.fool.com/45acpbullseye/2013/06/25/single-family-reit-ipos-too-early-for-wall-street/37596/http://www.reuters.com/article/2012/10/17/us-foreclosed-hedgefunds-idUSBRE89G1TE20121017http://www.reuters.com/article/2012/10/17/us-foreclosed-hedgefunds-idUSBRE89G1TE20121017http://www.reuters.com/article/2012/10/17/us-foreclosed-hedgefunds-idUSBRE89G1TE20121017http://www.fitchratings.com/gws/en/fitchwire/fitchwirearticle/US-Residential-Recovery?pr_id=792238http://www.fitchratings.com/gws/en/fitchwire/fitchwirearticle/US-Residential-Recovery?pr_id=792238https://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/19529_cshomeprice-release-0730.pdf?force_download=truehttps://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/19529_cshomeprice-release-0730.pdf?force_download=truehttps://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/19529_cshomeprice-release-0730.pdf?force_download=truehttps://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/19529_cshomeprice-release-0730.pdf?force_download=truehttp://www.federalreserve.gov/newsevents/conferences/Mallach-20130226.pdfhttp://www.federalreserve.gov/newsevents/conferences/Mallach-20130226.pdfhttp://www.nytimes.com/2013/06/09/us/cash-is-fueling-quick-home-sales.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66 National Consumer Law Center, FHAs Distressed Asset SaleProgram Should Strengthen Home Retention Goals (2012),available at https://www.nclc.org/images/pd/oreclosure_mortgage/mortgage_servicing/ha-loan-sales-12262012.pd. For summaries o the FHAs national and neighborhoodstabilization auctions, see U.S. Department o Housing andUrban Development, Single Family Loan Sale Initiative,available at http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/comp/asset/sam/ss.

67 CAP recommended early on that the FHFA adopt a pilotprogram to sell government-owned oreclosed propertiesto investors with strict screening standards and serious

monitoring. See Alon Cohen and others, Rehab-to-RentCan Help Hard-Hit Communities and Our Economy(Washington: Center or American Progress, 2012), availableat http://www.americanprogress.org/wp-content/uploads/issues/2012/01/pd/rehab_to_rent.pd.

68 John Gittelsohn, American Homes 4 Rent Tests HousingREIT Market With IPO, Bloomberg, July 31, 2013, available athttp://www.bloomberg.com/news/2013-07-31/american-homes-4-rent-tests-housing-reit-market-with-ipo.html.

69 Federal Housing Finance Agency, Conservators Report onthe Enterprises Financial Perormance, First Quarter 2013(2013), available at http://www.ha.gov/webles/25406/ConservatorReport1Q2013F.pd.

70 Rachel Bell, More consumers nearing perect FICO Scores,but are scores improving?, FICO Banking Analytics Blog,April 30, 2012, available at http://bankinganalyticsblog.co.com/2012/04/more-consumers-nearing-perect-co-scores-but-are-scores-improving.html.

71 Center or Responsible Lending, A Government-Mandated10% Down Payment: Bad or Families, the Housing Market

and the Economy (2012), available at http://www.respon-siblelending.org/mortgage-lending/policy-legislation/regulators/10-percent-down-payment-bad.pd.

72 Federal Housing Finance Agency, Conservators Report onthe Enterprises Financial Perormance.
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cash for homes: policy implications of an investor-led housing recovery

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