Computerized House Flippers and Conflicting Interests

New Orleans       It was bad enough when Wall Street sharpies like Blackstone started buying tranches of foreclosed houses in the suburbs to paint, rent, and then cash out.  Now, algorithms are being deployed for house flippers.  What could go right or wrong with this picture?

A story in the Wall Street Journal claimed that metro Phoenix is ground zero for the future of home purchases.  More than 5% of the home sales in 2018 involving 5000 properties were made by companies launching computer driven, algorithm powered approaches to the market.  Opendoor, a San Francisco startup, Zillow, the listing and area pricing web giant, and Offerpad are breaking this ground.

The Journal walked the reader through the new world:

“At the edge of the city’s stucco sprawl, a beige, three-bedroom house with a gravel yard sold last month for $240,000.  The seller, Opendoor Labs, Inc. paid $215,000 for the house in January, replaced carpet and repainted, and put it back on the market.  A computer told the company what to offer and how much to ask.  There was no need to schedule a showing with a real-estate agent.  Prospective buyers of Opendoor homes can download an app to unlock the door.”

Wham, bam, thank you Alexa, Siri, or whatever they call their thing!

What is it about Phoenix?  The city can’t catch a break.  First, the sketchy boom and then the bust over a decade ago, and just as things begin to even out again, here come the techies.

Sadly, real estate agents and realtors are a bit like taxi drivers in the love-hate relationship they maintain with consumers.  There are over two-millions of them and 1.3 million are actually licensed realtors with access to multi-listings and supposedly a code of ethics.  Even if you like your person, you know she only gets her slice if you buy or sell, so her self-interest and yours are always in conflict, and her advice always comes with many grains of salt.

Many consumers would be delighted to bring the Airbnb model to home buying, although that’s sobering for more than just the loss of jobs.  Airbnb now slants its algorithm to favor listings at its demand price and destinations.   What is there to keep Zillow from favoring the houses it owns on its listings compared to the rest of the field?  Nothing!

Add to the mayhem this disruption will bring is the fact that algorithms will undoubtedly not be limited to purchase and sales prices, but also to rents, which is surely what Blackstone is doing for its 80,000 properties.  Tell me that won’t accelerate gentrification and community mayhem.  Is there a better argument for rent controls? I can’t think of anything else off hand that will stop predatory practices.

Looking at the Uber model, we would have to predict that it would just be a matter of time before the fixed agent price of 7% or whatever would fall like a house of cards.  The companies win and base their business model on volume, which almost always favors price cutting, and that’s the easiest piece to cut.

Hey, you might say, it can’t happen here.  Opendoor is now in 23 cities and is targeting another 27 by next year.  Zillow claims it will be buying 5000 houses per month. Think again!

We need to get ahead of the e-world coming to home and apartment purchase and rental or the consequences could be huge.

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Hope for Frances Gomez and Other Foreclosure Victims

New Orleans I have often quoted a line by a former Republican OMB director that we should “never suffer from premature certainty,” and given the disaster that banks, the Treasury Department, the Bush and Obama Administrations, and the servicers have made of the housing crises and its millions of homeowner victims, I almost hesitate to hope again that there might be some good news, so everyone is now duly warned, but reports now published in The New York Times and elsewhere indicate that the servicers are about to sign consent orders which would profoundly modify their evil ways.

Here are some of the likely elements of the deal:

  • Foreclosure staff will finally have to be properly trained which seeks to correct the problem of hiring, literally, from Burger King drive-by windows.
  • Third-party groups, including the shyster “mod-shops” and law firms.  I know Phoenix and there will be a lot of folks in this sub-industry looking for new jobs!
  • Every homeowner in default will have one “single point of contact” which would finally put an end to the anarchic madness and referral phone banks from Guatemala used by Bank of America for example.

All of that is nice and there’s an indication that there might be fines in the future for the scofflaws who don’t mend their ways, but there are two ingredients that made a profound difference for the victims and could be game changers if there is finally a fair deal for the beleaguered folks trying to hold onto their homes and in some cases having them stolen from them.

  • I’ve talked endlessly over the last year about the case of Frances Gomez in Phoenix.  While in the process of negotiating and being approved for a loan modification on her family home of 30 years, Bank of America foreclosed on her home and took it out from under her.  With pressure from the media, Advocates & Actions, and others, Bank of America admitted publicly that they had made a mistake.  They claimed that they bought the house back from foreclosure. They assigned it to a law firm in Phoenix to supposedly return the home to Ms. Gomez.  Now moving on almost a year later, Frances still does not have her home and has been caught in an endless “catch-22” which I have often shared with her as she has tried to get the “old deal” revived and seen Bank of America and its agents try to restore the original loan terms, pretending that this is a modification, that are almost three times the current value of the home.  Sure she could have the home back, but she would have to be crazy or rich, and she’s neither, so she continues to rent with her daughter and son-in-law and mourn the loss.  Well, this agreement may finally provide some relief, even if not her home!  The servicers will be required to employ an “independent consultant” who will review foreclosures over the last two years (why two?!?), and if homeowners were ripped off by predatory practices and fees or errors, incompetence, and theft as Frances experienced, then “they will be compensated.”  Let’s fight for that, Frances!
  • Furthermore, this agreement reportedly will prevent there being more “Frances Gomez” cases in the future.  It will bar servicers from being able to foreclose while home owners “are pursing loan modifications that might allow them to stay in their homes.”  That’s what we’re talking about, and that will make a difference in dealing with these scalawags.

At least maybe it will.  Nothing has worked so far and no promises have been kept to date by any of these bums from the street to Pennsylvania Avenue.

The difference could be that finally there may be some real weapons we have to fight with to force a fair deal and a little justice for homeowners trying to hang on, and that’s hope that can fuel a plan!

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