AlyssaKatz.com

Foreclosure graveyards

In the new issue of The American Prospect, I write about the latest phase of mortgage crisis fallout: the mass dumping of vacant, foreclosed real estate onto already devastated city streets. My article is set in Atlanta but it could as easily be about St. Louis, Jacksonville, Akron, and many older midsize cities whose modest older houses are caught in literal shell games played by mortgage servicers and real estate speculators. It’s all a tragic waste. HUD is spending billions on programs to help neighborhoods recover from mass foreclosures, but it’s no match for mortgage servicers’ maneuvers to cut their losses.

One twist that didn’t make it into the story: When servicers get rid of their real estate for pennies on the dollar, the biggest losers are mortgage securities investors with the riskiest, most toxic stakes, and some, such as hedge fund manager Bruce Rose, have been fighting back in court and in their own business practices. As Ruth Simon reported recently in the Wall Street Journal [subscriber only - sorry], Rose’s Carrington Mortgage Services, which now manages the defunct subprime lender New Century’s portfolio, has been keeping real estate out of the foreclosure graveyard through aggressive loan modifications and by renting homes out directly to tenants. (It’s not clear whether some of those tenants are the homes’ former owners, but that certainly seems likely.) Rose believes, correctly, that the real estate will eventually sell for more than it does right now, and that it’s in his best interest to hold on to the property in the meantime.

What we’ve got here is an unlikely alignment of interests between do-gooder community development groups and high-flying financiers seeking to protect their losing investments. The two forces would do well to team up to help stop the insanity.

If you want to see my article in its printed form, with pix, or read more of The American Prospect – you should – it’s now available in free PDF download to registered users.

Thank you to the Nation Institute Investigative Fund for sponsoring the research for this article, and for my earlier “Predatory Lending With a Smiley Face” in Salon, about the loan modification industry.

Tuesday, August 18th, 2009 | Tags: American Prospect, Carrington Mortgage Services, foreclosures
Posted in A Lot More | 2 Comments »