Private Equity Sabotaging Working Communities

lone-star-foreclosures

the map is a few years old

Madison   Auction off tens of thousands of homes during the housing crisis to private equity companies without rules or wherefores other than to offload the problems, despite knowing that private equity operations only care about their bottom line, what could go wrong? Not surprisingly, it turns out, just about everything, and nowhere is this truer than when the private equity bunch is led by Lone Star and the robber baron of our time, John Grayken, the American-born pirate who renounced his citizenship in order to pay less taxes, and now pretends to live in Ireland.

The New York Times is finally taking a look at the disaster that has followed the government’s policy of cut-and-run on the housing crisis and found the biggest culprits were Lone Star and its servicer, Caliber, Nationstar, also with Texas roots, and of course Blackstone, which has come out of this bottom feeding crisis as the largest private landlord in the country. Private equity firms are money machines and make it clear that if they make more money foreclosing, they won’t hesitate. Most hardly participated in the HAMP, housing modification program, to try to allow families to keep their homes, and because the government turned the whole modification process over to banks and financiers, there was no requirement that they do so.

Neither of course was there any obligation under the Community Reinvestment Act to benefit lower income, racially diverse communities and not discriminate in lending. As the Times reports:

But much of this investment has not benefited poor neighborhoods. Banks are expected, under the Community Reinvestment Act, to help meet the credit needs of low-income neighborhoods in areas they serve. Private equity has no such obligation. The idea is that banks should follow an implicit social contract: In return for government loans and other support, they are expected to serve a community’s needs. Private equity, which unlike the banks does not borrow money from the government, is answerable to its investors. Those investors include some of the nation’s largest pension plans, whose members — teachers and police officers among them — may support improvements to such lower-income areas.

And, that’s putting it mildly.

Private equity makes no bones about any of this either.

 

Lone Star explains to investors one way it profits from delinquent loans. Lone Star’s mortgage subsidiary will lower a borrower’s monthly payment if “the net present value of a modification is greater than the net present value of a foreclosure, loan sale or short sale.” Translation: If foreclosing on a homeowner is the most profitable option, Lone Star is likely to foreclose.

Not surprisingly, the new bosses for the housing market are much like the old bosses, except worse. Paperwork is misplaced or disappears. Homeowners can’t get responses or assistance. Modifications come too late to prevent foreclosures, and the beat goes on.

Pretty simply when you turn over the chicken house to the fox, you don’t just have a problem, you have no chickens, and in this case all of us, especially in low-and-moderate income communities are the chickens, clucking all the way to the slaughter.

Think I’m exaggerating? Here’s a perfect example from the Times on the vicious circle of predatory exploitation that Nationstar is able to practice directly and through its subsidiaries:

The whirl of transactions illustrates how Nationstar can control nearly every stage of the mortgage process, posing potential conflicts of interest as it earns fees along the way. Nationstar collects bills and, when people don’t pay, can foreclose on homes. Nationstar earns fees auctioning those homes through Homesearch. Ads on Homesearch, which is now known online as Xome.com, direct bidders to Greenlight. Nationstar can then collect on the new mortgage, bringing the process full circle.

As banks have pulled out of housing and private equity has swooped in, low and moderate communities are also being starved of needed investment, which also feeds into yet another cycle or deteriorating conditions for our communities. What’s the government doing about all of this? Not much. There’s talk of some new regulations by HUD, but who knows at this point, that may be too little and it’s definitely too late. Some Congressmen are moaning about their folks and foreclosures, but most of this is wishing-and-a-hoping. Looks like we’re headed for the wall again, unless there’s big change in the relationships between Washington and Wall Street, and that’s not looking so good this minute either.

Source: The New York Times

Source: The New York Times

Facebooktwittergoogle_plusredditpinterestlinkedinmail

Robber Barons behind Payday Lending and Their Enablers

MoneyMartNew Orleans   In trying to take a close look at payday lenders, we’re always interested in who the money bags are behind these predatory lenders who are feasting on lower income and desperate families. It’s not a pretty picture and the perhaps the worst snapshot comes from looking at one of the world’s big outfits, Money Mart, and the man ultimately holding the purse strings and the profits, John Grayken.

Talk about a robber baron, this guy specializes in what is euphemistically called “distressed” properties, but more often seems to be simply anyone distressed and desperate. He’s a billionaire of course, joining the Forbes list this year with over $6 billion to his name. He owns something called Lone Star, which of course is headquartered in Dallas, where his career began doing deals with the Bass Brothers and their oil fortune. He started flipping properties for them in partnership with the Federal Deposit Insurance Corporation (FDIC) back in the savings and loan crisis, and you could almost say, he’s gone down from there with a gaggle of private equity funds and more bottom fishing. An article in Forbes in March, doesn’t draw a pretty picture of his work:

Since the Great Recession Grayken has made a specialty of buying up distressed and delinquent home mortgages from government agencies and banks worldwide. He’s also picked up a major payday lender, a Spanish home builder and an Irish hotel chain. Regulators hassle him, and the homeowners whose mortgages he owns or services despise his tactics. In fact, he has become accustomed to taking shots from detractors and has been the subject of protests from New York to Berlin to Seoul. Last year New York Attorney General Eric Schneiderman reportedly opened an investigation into Grayken’s heavy-handed mortgage-servicing tactics, including aggressive foreclosures, which have unleashed widespread outcries from homeowners, housing advocates and trade unions.

The “major payday lender” was Dollar Financial Services (DFS) which specializes in pawnshops and payday lending through its ownership of Money Mart, the largest predatory lender in Canada with other offices around the world, including the United Kingdom where it is also the largest payday loan operator through the Money Shop, along with other brands.

Before Dallas he was a Massachusetts native, though he has now renounced his US citizenship for an Irish passport in order to pay less taxes, meaning he can’t spend more than 120 days a year on US-soil. I doubt if this is the kind of “inversion” that fellow billionaire, Donald Trump, is talking about stopping if he ever gets to sleep in the White House. Grayken is really a citizen of nowhere, and pretty much in trouble almost everywhere he operates for his predatory tactics.

Sadly, predatory lending and vulture acquisition of foreclosed homes pays well, so the returns on his equity funds are in the double digits, and, according to Forbes, they have made this robber baron especially popular among pension funds. Oregon is a good example though they are not the only ones slurping from this poisoned well:

The Oregon Public Employees Retirement System has invested $2.2 billion in many of Lone Star’s funds. In 2013, for example, it committed $180 million in Lone Star Fund VIII and has already posted annualized net returns of 29%. A $4.6 billion fund Grayken raised in 2010 has returned 52% per year to Oregon pensioners.

When you start following the money in the predatory, payday lending world, make sure you have a shower handy, because this is dirty, dirty business. Of course for Grayken and his jealous peers and greedy investors, this is just the way business is done. Done to us, that is!

Facebooktwittergoogle_plusredditpinterestlinkedinmail