HOPC Space in the Housing Market

HOPC is entering a unique space in the nonperforming loan portfolio market. HOPC’s goal is to try to prevent as many foreclosures as possible and to keep as many homeowners as it can in their homes. HOPC provides a structure that allows for foreclosures while giving homeowners with problem mortgages the ability to qualify for loan modification that offers principal forgiveness and affordable mortgage payments. If the homeowner cannot qualify for loan modification, then the homeowner may still qualify to stay in their home as a short term renter with a lease option to buy back their home. The program provides a legal solution in which all parties will gain including the homeowner, the investor, the local community and US taxpayers. HOPC expects that investors will make a better return on their investment by providing loan modifications and keeping the homeowners in their homes than by foreclosing.

The housing collapse that led to the Great Recession has resulted in over five million foreclosures. During 2012 the housing market stabilized with a recovery in home prices, home starts and new and existing home sales. This housing recovery is unlike any other housing recovery. This housing recovery is not fueled by first time homebuyers but by Wall Street and banks that are speculating on housing appreciation by buying rental homes. The last 2-3 years hedge funds have raised a vast amount of money to buy foreclosed single-family homes. They are buying at trustee sales or through short sales or in bulk from Bank REO inventories. They have created an REO-to-Rental market and they promise their investors 6-10 percent return generated from the rental income and a share of the profits when the properties are sold. Banks, servicers and hedge funds have created an artificial housing market. They have been able to stabilize home prices mainly by prolonging foreclosures and by controlling REO inventory.

Blackstone, Colony, American Homes 4 Rent, Waypoint and other hedge funds are committing hundreds of millions of dollars per week buying foreclosed homes. This has greatly contributed to home price appreciation and to inventory shortage. Their activities are distorting the housing markets in many communities. In addition, in order to meet desired results they are increasing rents by 15-20 percent. Some hedge funds like Och-Ziff are leaving the REO to Rental market claiming that returns were not as high as they expected. If many of them come to the same conclusion and exit the REO to Rental market it threatens to create a new downward pressure on home prices.