So back in the day, call it 2007 or so, I used to follow IrvineHousingBlog. It was a savvy developer who basically predicted the apocalyptic housing bubble that hit in 2008/2009. About 2009 he started putting forth the idea that the best solution was for large investors to buy foreclosures and sell them back to their owners as rentals. I'm not sure how far he got, but...
Well, as it turns out, Citigroup and others thought it'd be a dandy idea to buy up a bunch of single family homes and turn them into rentals (about 1/3 of the original idea). For some reason, nobody thought to point out that Citigroup et.al had been demonstrably shitty property managers so far and that maybe they might not know what they were getting into.
Lo and behold.
Unbelievable. I mean this is just...The bondholders should be fine – at least some of them. Like mortgage-backed securities, rental securities are purchased in tranches. The senior bondholders in the highest tranches get paid first with the rental revenue streams, while the junior bondholders in the lowest tranches must wait. They get a higher potential reward for taking on more risk, but with vacancy rates growing, they will likely lose money on the deals.
What determines if it would or would not lead to mass-evictions?Under the contracts of the rental-backed securities, if performance falls below a certain level, the entire portfolio goes into default, which may lead to evictions for thousands of renters. The more vacancy rates rise, the closer we get to those performance targets, and policymakers and regulators have not prepared for an uncertain aftermath.
Quite. Keep in mind - part of the catastro-fuck that was the mortgage crisis was a bunch of borrowers running the numbers and saying "you know, based on what I read here the only thing you can do to me if I walk away from $400k in debt is trash my credit rating. BRING IT BITCH". One of the deepest ironies in the banking sector is, in my opinion, the death of Washington Mutual. WaMu had pushed hard into crazy mortgages because they were selling derivatives like hotcakes. Meanwhile, at the other end of the building, WaMu was busily lobbying Congress to make credit card debt ever harder to disburse, to make it harder and harder to declare bankruptcy. So John Q, who has a WaMu debit card, a WaMu credit card and a WaMu mortgage, says "If I flop the debit card I get $39 per overdraft. If I flop the credit card I get a 39% interest rate and a debt I can never get rid of. If I skate on the mortgage, though, it doesn't much matter. And hey - WaMu wants to sell me a HELOC. So yeah - WaMu, I'll take a second mortgage on my house! And I'll use it to pay my credit cards. Thanks, WaMu!" It took WaMu about eight months to go from AAA to DEAD. And anyone with a grand overview of the process could have seen it a mile away. However, banks are exceptionally good at masking the grand overview. Had there been someone to ask "What happens when we make mortgages really easy to get and credit cards impossible to pay off?" WaMu would likely still be in business. So the answer to your question is "let's find out."