Bank of America has come up with an exciting new plan to turn non-paying home owners into upstanding renters.
OK, that’s a bit sarcastic, but it is true… and along the way Bank of America takes back ownership of the home.
The idea is to change the model from deadbeat homeowners to renters, so the property can be magically transformed from a home teetering on the brink of foreclosure into a solid, income-producing rental that Bank of America can sell to investors.
Fannie Mae and Freddie Mac, who previously tried a similar program, are now in discussions to sell large pools of foreclosed homes to investors planning to turn them into rentals. There is one condition. These investors must promise not to sell the foreclosed homes they acquire for at least three years.
Make no mistake. This will have a tremendous effect on consumption.
A Downgrade From Squatters to Homeless…
The movement of mortgage delinquencies through the system, and the mass sale of foreclosures into the rental market, is going to push the down-and-out people squatting in their homes onto the street.
Stories of homeowners who have quit paying their mortgage are everywhere. We even discussed this phenomenon on March 6.
But what do these people do with the cash they save by not paying their mortgage, property taxes, insurance payments or any rent? I think it’s a safe bet to say they’re not diligently socking that cash away. It’s more likely they’re spending it on iPads or iPhones, on dinners out or new cars.
As the programs at Bank of America, Fannie Mae and Freddie Mac go into effect, those people living in these homes for free will have two choices – pay rent or leave. And even if they leave, they’ll have to pay for housing somewhere.
All this points to consumer spending slowing abruptly ahead. The economic indicators that have been modestly positive lately – like retail sales and consumer confidence – will rollover. As they do, there will be ample opportunity for investors who are short the markets (equities, bonds, etc.) to make substantial gains.
Make sure you’re ready.