The Rise of the New Land Lords 

After gobbling up foreclosed homes in Oakland and other communities, wealthy corporate investors are now creating what Wall Street calls the "rentership society."

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Back in 2005, when Oakland residents were signing half-million-dollar-mortgage agreements to buy homes that were valued at a fifth of that price five years before, Barrack told Fortune magazine that he was getting out of the real estate game. "There's too much money chasing too few good deals, with too much debt and too few brains," said Barrack. "The amateurs are going to get trampled."

The stampede began in 2008, and Oakland was trampled badly. However, according to academic researchers who have studied the financial crisis, it wasn't because local "amateurs" were chasing deals with hot money, or, as conservative pundits have claimed, because low-income buyers were irresponsible and bought homes they couldn't afford. The financial crisis was a macroeconomic problem, fueled by central bank policies, banking industry deregulation, and the avaricious decisions of the financial sector's highly paid CEOs, especially those leading the mortgage lending industry.

Deregulation of the mortgage industry allowed banks to sign borrowers up for explosive loans with usurious rates and to bury homeowners in debt. The banks often used misleading advertising to lure borrowers in. For example, Cheri King's original mortgage loan included an "adjustable rate rider" that allowed the bank to set her initial interest rate at 9.99 percent, according to the Deed of Trust on file with the Alameda County Recorder's Office. Her interest rate thereafter was reset every six months, but according to the deed, it could never fall below 9.99 percent, and could rise as high as 15.99 percent.

Alex Schafran, a lecturer in urban geography at the University of Leeds in the United Kingdom who has studied the foreclosure crisis in the Bay Area, said the impact of home losses and investor buying has been hardest on African-American and Latino households. "The crisis, people losing their homes during the crash, was racialized based on who got subprime loans, and who bought these houses in markets where prices were inflating fast," explained Schafran.

All of the banks that owned Cheri King's home loans over the years, including Long Beach Mortgage Company (a subsidiary of Washington Mutual), World Savings Bank, Wachovia, and the eventual owner of the mortgage, Wells Fargo, have settled multiple cases with the US Department of Justice (DOJ) and states' attorneys general for conducting predatory and discriminatory business practices that led to millions of foreclosures nationwide.

The loan King used to buy her house came from Long Beach Mortgage Company. Long Beach Mortgage was investigated by the DOJ in the mid-1990s because, according to a government lawsuit, "the [b]ank engaged in lending practices that constituted unlawful discrimination on the basis of race, national origin, gender and age," and "treated African American, Hispanic, female or older borrowers differently from younger, white male borrowers by charging them higher prices for mortgage loans." (King is African American.) Long Beach Mortgage Company employees were paid commissions based on the number of loans they executed, creating a perverse incentive to push low-income borrowers into subprime mortgages whether or not they could afford them.

In 2004 and 2005, Oakland-based World Savings Bank loaned King money against her home. World Savings Bank was one of the most prolific and controversial lenders during the real estate boom of the last decade. Paul Bishop, an employee of the bank, called the company an "Enron," because World Savings was purposefully extending subprime and adjustable rate loans that trapped borrowers in interest-only payments that actually grew the debt they owed. Wachovia Bank ended up buying World Savings in 2006 just before the crash, obtaining King's mortgage in the process, and when the crash came, it was World Savings' multibillion-dollar portfolio of toxic loans that destroyed Wachovia. Wachovia was subsequently sold to Wells Fargo, once again along with King's home loan.

In 2010, then-California Attorney General Jerry Brown reached an agreement with Wells Fargo pertaining to the World Savings Banks' destructive lending practices. Wells Fargo promised to provide loan modifications for $2 billion in World Savings Bank loans made during the 2000s, but it's not clear how many people's homes were saved.

Wells Fargo, Wachovia, and Washington Mutual also were at the center of the $25 billion national mortgage settlement stemming from the same abusive practices that King says Wells Fargo used to take her home away — obstructing loan modification, lying about paperwork and deadlines, and pursuing other bad-faith strategies in order to rapidly foreclose on struggling homeowners. The national mortgage settlement was supposed to stem the foreclosures and save people's homes through loan modifications like the one King was seeking. Instead, the settlement has come up short, and few homeowners have received meaningful assistance.

Meanwhile, opportunistic corporations and investors have stepped forward to profit from the fallout.

The mission of Thomas Barrack's company, Colony American Homes, is to buy up as many single-family homes as possible while the prices are still low, and to convert them into rental units in order to harvest income for wealthy investors.

"The price is right," said Sarah Edelman, a policy analyst at the Center for American Progress who has closely tracked the rise of institutional investors in the residential housing market. "These companies are able to buy homes at serious discounts right now. It's a business opportunity that hasn't presented itself ever before because there's so many cheap homes, but there's tight credit for individual homebuyers, and more renters after the foreclosure crisis."

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