The Federal Reserve is definitely helping corporate real estate investors evict poor people from mobile home parks.
NPR pointed out the increasing number of mobile home component evictions. According to the report, real-estate investors continue to buy upward mobile home parks throughout the US. They then raise great deal rents and fees, and evict residents who aren’t pay.
Because the report explains, the government makes this scheme possible with simple financing through agencies such as Fannie Mae and Freddie Mac. Here’s how functions in a nutshell.
A company raises rates plus fees in a park. That makes the park more beneficial. So they can now borrow more money against it, kind of like once you refi your house and get cash out of the deal. They take out, say, $3 million, and they use that to go buy another mobile home recreation area. And then they do that again and again. It’s a cascade of borrowed money. And often, these loans are backed by the ALL OF US government. They provide very, really low-cost debt for these investors to get enough cash out to go buy additional parks. The particular loans have super cheap interest rates because they’re guaranteed by Fannie Mae plus Freddie Mac, the government-backed entities at the heart of the US mortgage market. ”
NPR will get part of the story right. Actually it’s pretty impressive that they didn’t just pin the blame on “ greedy capitalists. ”
Nevertheless, the story completely does not show for the biggest player in this game— the Federal Reserve.
NPR asserts the fact that interest rates are low since the government backs the loans. That’s certainly part of the formula. But it’s the central financial institution that pushes interest rates in order to artificially low levels. And the Fed also makes it possible for these quasi-governmental agencies to continue to buy loans through its quantitative easing program .
Fannie Mae and Freddie Mac shouldn’t make the actual loans. Personal banks do that. The banks then sell the home loans on the secondary market. That is certainly where Freddie and Fannie step in. These government-backed businesses buy mortgages and deal them into “ mortgage-backed securities” (MBS). As Investopedia explains, an MBS “ represents an interest in the pool of mortgages. Like bonds, an MBS makes coupon payments to investors. ”
By selling mortgages on the secondary marketplace, banks also shed the risk inherent in lending money. When Fannie and Freddie buy a mortgage, they also purchase the risk of non-payment. Securitizing the risk and selling mortgage-backed securities dilute the risk further. With multiple mortgages included together into one security, one or two defaults won’t have a lot impact on the MBS. Yet as we saw in 2007, when the entire housing market crashes, things snowball quickly.
Enter the Federal Hold. It buys these mortgage-backed securities from Freddie, Fannie, and also Ginnie Mae. This provides these operations with a cash infusion that enables them to buy even more mortgages, meaning banks can sell more home loans to Freddie and Fannie, and then turn around and give more money.
The particular Fed’s intervention into the mortgage markets, along with its interest rate cuts, keep mortgage rates far below their organic levels. In effect, it fruit juices the mortgage market. This can be a big reason we’ve observed home sales boom plus housing prices rise because the US economy emerges through the pandemic.
Because governments shut down the economy in response to COVID-19, the Fed launched what we’ve known as “ QE infinity . ” That crisis-mode monetary policy remains in place to this very day. Included in its extraordinary monetary plan, the Fed buys on average $120 billion in US Treasuries and mortgage-backed investments every month. Of that, the main banks spend about $40 billion per month buying MBS.
I should remember that the Fed creates cash out of thin air to buy these securities. This entire operation would be impossible were this not for the central bank’s ability to monetize the debt— “ print” money to buy debt. In effect, Freddie plus Fannie can buy all the home loans it wants knowing that the particular Fed will take some of them off their hands and infuse them with more cash. The process obliterates any semblance of restraint in the mortgage marketplace.
NPR happened into the truth when it recognized Freddie Mac and Fannie Mae’s role in facilitating this takeover of cellular home parks. But they failed to go far enough. They will missed the wizard behind the curtain that retains the entire scheme afloat— the particular Federal Reserve.
This is yet another way the Fed distorts the economic climate, drives misallocations of resources, transfers wealth from the bad to the rich, and generally wreaks havoc.