Landlord Blackstone Rushes To Capitalize On Housing Bubble By Launching First Ever REO-To-Rent Securitization

Tyler Durden's picture

In addition to the phenomenon of "foreclosure stuffing" described here extensively before, one of the main reasons for the artificial drop in housing supply has been the ongoing government-subsidized, GSE/FHFA endorsed REO-to-Rent initiative, through which large asset managers have been encouraged to take advantage of government funded, risk-free financing and purchase foreclosed properties in bulk, with the intention of converting them into rental properties. The REO-To-Rent has traditionally been open to the biggest of financial companies, or at least those who don't have the stigma of legacy mortgage origination resulting in billions in litigation reserves, which means mostly hedge funds and PE firms. One of the main players in the space, Och-Ziff, decided to pull out of the landlord business in October of last year because, as Reuters reported, "the returns it is generating from rental income are less than expected and it is looking to take advantage of a recent rebound in home prices in northern California." In other words, selling while the selling is good.

Of course, there is another, far more traditional way to offload risk while preserving some of the upside: dump the balance sheet exposure to others while giving them a fraction of the potential upside yield. This is precisely what the big banks were doing during the last housing bubble when massive residential mortgage-backed security portfolios were packaged, spliced, securitized (sometime without the feedback of firms like Paulson pre-shorting the MBS courtesy of firms like Goldman) and sold off to other yield-starved investors. Everyone knows how that ended.

So fast forward to today, when this final missing link from the credit and housing bubble is finally here too, following news that mega-PE firm Blackstone is pushing forward with the first ever REO-To-Rental securitization.

From Reuters:

Blackstone is preparing a first-of-its-kind securitization of REO-to-rental properties, and the deal could come later this year, according to sources with knowledge of the plans.


Word of the plans comes a week after the private equity giant got an increased bank loan from Deutsche Bank and others to expand its significant holdings of single-family homes.


Market sources told IFR that Blackstone is planning at least one securitization to help underpin its long-term financing in the REO-to-rental sector.


The new Deutsche Bank loan, upsized to US$2.1bn, includes an original US$600m warehouse facility in addition to investments from eight other banks and securities investors.


At least 20 banks and investors looked at participating in the loan, and some passed because their charters would only allow them to participate in bond deals and not bank loans.


Securitization specialists with knowledge of the deal said Deutsche Bank expanded the size of the facility in order to accommodate Blackstone's increased commitment to purchasing distressed single-family homes with the goal of renting them out.

The missing funding link: the same dumb money that in 2-3 years will be litigating to kingdom come how nobody had any idea the bubble would pop leaving them with nothing:

Starting with equity investments and now warehouse financing from
investment banks, the final step would be involvement of the capital
markets in the form of a securitization, experts say.

The best news is that unlike in 2005-2007, there will be no rating agency scapegoats, as this time the bubble is so big, nobody is even demanding a rating!

Blackstone is the largest asset manager in the sector, and demand for a securitization is thought to be so strong that any deal could go forward without needing credit ratings.

Which is good - finally those imprudent speculators, once known as asset managers, will have no excuse to justify their actions, and blame it all on AAA-ratings by S&P and Moodys.

So what exactly will the dumb money be getting in exchange for a BBB tranche yielding some 6-7%? Why, nothing but the best:

The average size of the houses that Blackstone is purchasing in areas such as Phoenix and Tampa is 1800 to 1900 square feet, typically with three bedrooms and 2.5 baths, according to sources familiar with their investment properties.


Specialists say that once the purchased properties are rehabilitated with a tenant, they become good candidates for inclusion in the traditional securitization process.

Which means that, as our readers know very well, five years after the last bubble, the new bubble is back and it is bigger than ever. Does anyone care? Why, no, of course: the music is playing and one must jump both feet into the dance if one hopes to be paid anything at the end of the year. The lemming dance that is. Because everyone knows how all of this ends every time.

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spastic_colon's picture

maybe "the people" will finally get their chance to buy up cheap real 20 years.......f**k blackstone and all the other's that used mark-to-whatever-the-fuck-I-say-it-is accounting


FASB = Fuck All Suckers Baby

kaiserhoff's picture

Gee, could I get in on this, and maybe buy some options, on the vix, of the stink coming out of that deal?

disclosure: long swimming challenged hogs

Doomer's picture

The future is so bright now, I just f*cking wet myself.  Surely, this is the dawn of a new age of prosperity.  Thank you, captains of finance, for doing God's work.

Is this country great, or what?!?!?!

chunga's picture

Attention MERS lovers and Foreclosure Stuffers.

City of Providence Amicus Curiae - MERS - "Intentional Misrepresentation"

"The City of Providence is an interested party because MERS's intentional misrepresentation as a mortgagee and the Superior Court's erroneous decision to allow the perpetuation of this misrepresentation is harming the City."


"Allowing MERS to confer upon itself the status of mortgagee undermines the accuracy of the land evidence records, which in turn both delays foreclosure proceedings and impedes the City's ability to safeguard the basic health, safety, and welfare of it's citizens with proactive enforcement of health, safety, and welfare of it's citizens with proactive enforcement of health and safety codes. Accordingly, the City of Providence moves to submit the attached brief as an interested party and friend of the Court to underscore why MERS is not and cannot be a mortgagee and to highlight the extent and danger of the term's misuse."

Fuck MERS and you too Blackstone.

kaiserhoff's picture

In a judicial state (about half of them), happiness is finding a Linda Green signature on your mortgage documents.


chunga's picture

Rhode Island is non-judicial but still has quite a few people filing lawsuits against the Black Hats.

Unfortunately it's always been super-corrupt; it was known as a haven for pirates.

Over 700 plaintiffs' cases have been consolidated into one...with a banker appointed as a "Special Master" and imbued with the authority of the court.

How the hell did that happen? I've got some junk on Brian Bly from Nationwide Title I'm dying to expose that will destroy this whole thing. Just for fun.

RI Special Master Merrill W. Sherman - Former Banker - Corrupts Federal Foreclosure Order


MachoMan's picture

Having some luck in our fight against a TBTF in the foreclosure case...

Seems there are quite a few issues...  but, in general, as part of the assignment process, there is never any assignment to the Depositor of the Pooling and Service Agreement...  the entire chain gets skipped and it goes from originator or first assignee straight to the end of the pack, the Trustee.

We actually have a screw up in the recorded assignments (how the fuck does that get screwed up?).  In that the originator assigned the loan to party X (recorded first) and then assigned it again to party Y (recorded second)...  and party Y is the alleged predecessor to the trustee...  oops.

Also might have an issue with backdating...  the assignment wasn't recorded until 6+ months after the closing date in the PSA...  but the date on the assignment is within the closing date...  my guess is that it was fudged.  At the very least, the late recording was against the PSA...  not sure whether that is dispositive of anything though.  Who knows if we'll be able to prove it was backdated.

There was also an allonge that was never dated nor recorded...  again, my guess is that it too was fudged and it almost certainly wasn't ever made part of the loan docs/affixed to the note. 

Needless to say, the screwups are voluminous.  Who knows which one, if any, will be the key to victory.

chunga's picture

Simply i's without dots and t's without crosses as they'd have us believe?

I think it's important to follow the money trail. If they can't show wire transfers to and from the "investor" that funded that particular loan within the closing date they have no choice but fudge everything after that.

It is no longer a "qualified" mortgage after that point and can never become one. If you get that far in discovery very serious IRS ramifications come into play.

I'm glad you took this on Macho.

kaiserhoff's picture

It should only take one, but these days, sabe dios.

In any case, well done, Macho.

FEDbuster's picture

Perhaps you can call in Linda Green to testify?

Cognitive Dissonance's picture

While history rarely repeats it does tend to rhyme and often carry the same beat.

<Uncle Ben.....I can name that tune in one note.>

22winmag's picture

Neo-feudal vulture scum lords like this Hackstone MUST BE PURGED!

smlbizman's picture

it is such a great deal, they want to share...

uno's picture

takes us back down memory lane

BERNANKE: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis.

zerozulu's picture

Time has come that USA turn in to USSA and everyone get communal residence. Everything else is already in place.

Kaiser Sousa's picture

ive said it here every since i came to this community...

bankers are sociopaths...the can be trusted to do what sociopaths r driven to do...

that is fuck you over IF you allow them to...


withdraw from the banks and resist by accumulating REAL money....Physical Gold & Silver....


Rusty Diggins's picture

...until the last banker is strangled with the entrails of the last politician...

Go Tribe's picture

You got a down arrow on that post? I guess the voter didn't fucking like the fucking use of the fucking word fuck to describe the fucking banksters. Or something.

Downtoolong's picture

And the next question is, which dufuss dumb ass pension fund manager is going to buy this shit before the company he works for fires it's workers, who also happen to be the tenants of the properties he now owns?

kaiserhoff's picture

As the Canucks say, "you got that right." 

azengrcat's picture

Awww yeah, muppet money coming back to PHX!!!

jbvtme's picture

let me guess the name of the new robo tenant just before the securitization...linda green?

Omen IV's picture

Pinky Green took over the franchise in Zug - from linda

Seasmoke's picture

Fuck You Wilburrrrrrrrrr !

SmittyinLA's picture

I think a "detatched single family home rent revenue tax" is in order, say a sliding scale starting at 22% with an unlimited upside to support the immigrant/alien welfare population of CA. 

And give everybody that pays rent a rebate too, to preclude landlords that don't report cash rents.


astoriajoe's picture

So we all get screwed by this thing..twice. Awesome.

Keynesian Mess's picture

But, but, but .... isn't it different this time?

FreeNewEnergy's picture

A special place in hell for Blackstone, right next to BofA digs, or Goldman's, or JPM's or... oh WTF, they're all going there eventually.

Rocbottom's picture

Blackstone and the rest of these private equity fucks aren't going anywhere.  In fact, considering they're coalescing power faster than ever before right now, I figure, hey: if you can't beat `em, join `em.  These guys are ruthless, and considering my entire model is largely dependent on rapid and consistent REO acquisitions, better to be an insider than an outsider when they decide to "shear" the middle class again... 

MsCreant's picture

I am bundling up a bunch of banks to sell into the market: (B)ank (B)acked (S)ecurities. Who's in?


Okay, okay, really I am just bundling up a bunch of bankers, with rope and duct tape. Now who's in?

adr's picture

SO the returns of the security is based on the rents being charged?

You can't really assign a rating because you don't actually know what the rent will be. At least a mortgage had a long contract that was supposed to be worth what the payments added up to be.

The REO to Rent strategy can easily backfire when the ghetto renters move in and trash every property, along with the increased crime rates that will send asking rent downhill. What once was a $2500 a month rental can become a $500 a month rental very fast. Especially in Phoenix and Tampa. Good neighborhoods six years ago are complete ghetto now.

Poetic injustice's picture

Now now, please put back your pink colored glasses before buying it.

They Tried to Steal My Gold's picture

Once they finish buying which in the process will raise real estate prices and limit inventory.....I'll sell mine. 


Thanks Blackstone - Forward Serf Nation!

Downtoolong's picture

Let me guess, Moody's rated it AAA++++++.

Bastiat's picture

Unemployed and underemployed renters can't support high rent anymore than they can high mortgage payments.  Market clearing is the only answer.

Bastiat's picture

Carnival cruise is having trouble handing sewage--I guess they don't understand the potential of securitization.

q99x2's picture

Tenents in houses are worse than badgers to try to get out once they stop paying rent. I think this is a bad idea.

Yamaha's picture

Like getting stink off shit......soon no income and they burn it.

Zer0head's picture

I read in another ZH article today that the middle class is being crushed

that would mean more demand for rentals

BX are fucking geniuses just like the guys back in the earlly nineties picking up all the S&L carcasses at pennies on the dollar and inventing CMBS 


boooyaaaah's picture

So we go from a country of emigrants trusting Jimmy Stewart and the private savings and loan to lend us money for a home.

Sure there are the monthly payments

But in the old country we owned nothing

Company stores and company housing

Not counting the landed gentry.Their land was fenced and poachers were shot

And now we had the Bushes and all the Democrate elites provided government backed loans . Fannie may. And they threw out years of mortgage lending wisdom.

And the banksters we are told to believe

Thought their computer programs discovered a new industry like oil or steel or railroads

Selling insurance on bad loans

So it has come to this

The USA has become a nation of tenants


Bunga Bunga's picture

....that once the purchased properties are rehabilitated with a tenant, they become good candidates for inclusion in the traditional securitization process....


Will the prostectus contain a list of the houses? Will be there an app for squatters? And what happens with houses, which go into adverse possession?

Xrated's picture

Where is the news that BOA dumped 8 million shitty loans on the Fed last month?

Boa went from 16 million loans to 6 million servicing right this minute?

BOA now has 12% market share, but has 100% performing $$$ loans.

Goodbye CW!

Youri Carma's picture

You see, banksters are eager to revive securitization because it makes much bigger cash flows going around in repackaging, selling, re-selling, re-re-selling and so forth …

Securitization Group Formed With BofA After Exodus at Rival
14 March 2013
, by Jody Shenn (Bloomberg)

It was the securitization fraud which led to the greatest collapse in housing ever witnessed.

Not only that but trough the securitization chaos no bank actually knew which mortgage they actually owned since they where all sliced up in those toxic securitizations packages which were fraudulently stamped triple-A by the rating agencies and which later led to the Robo-signing fraud.

The sliced up mortgages in the securitization process supposed to be carefully tracked by an electronic data base called MERS which never happened.

Banks just didn’t care cause they swooped up their fees and also made fortunes in shorting a draconian system which they themselves helped or rather not helped to create.

Securitization is dead now but obviously the banksters like to perpetrate the same scam over and over again since there are no repercussions at all on their criminal behavior and most sheople are brain dead.

The Securitization Scam: Foreclosures and the Mortgage Electronic Registration Systems (MERS)