Wall Street Banksters Now Getting Into Running Rent-To-Own Rackets?
- At a conference on housing finance last month, a collection of investors described their innovative "rent-to-own" products.
Rent-to-own schemes have long exploited the poor. Naturally, marketers address that problem with euphemisms. Today, it's called lease purchase. The arrangements work in myriad permutations, but the basic deal is that a person rents a home and pays for an option to buy it at a later date.
All the panelists hailed the product, calling it a "yield enhancer" that would increase profits. In a standard lease, one panelist explained, the owner covers costs like taxes, maintenance cost and insurance. With lease purchase, the renter pays those expenses. And it's easier to evict because the occupant has only a rental agreement. It's not a foreclosure proceeding against an owner, after all.
One went further. Eli Shaashua, of Red Granite Capital Partners, described it this way: "Basically, it's an added fee to the rent. For us, it instills pride in homeownership for some tenants who cannot currently when they rent a house own their own home."
Having pride in ownership means that the renter takes care of the property more carefully. So that's a good thing — for the owner, that is.
Shaashua went on to explain that his options last generally for two years. A renter pays a bit extra for the right to buy the house at a predetermined price, one above the current value.
Then Shaashua delivered the kicker to the roomful of would-be investment managers: "Most times, given the reality, tenants do take it, but it's hard for them to execute the option," he said. "Our experience is that most stay until the end and then they say they cannot come up with the down payment or decide not to stay in the property."
Voila, free money. This amounts to an admission that the product exploits consumers' lack of financial savvy. This shouldn't be surprising. Who are you going to bet gets the price right, an aspiring home buyer or analyst with access to oceans of data on prices and historic trends?
For another somewhat critical view of rent-to-own deals, see Minnesota Public Radio: Rent-to-own homebuying on the rise, and so are problems.
Go here for earlier posts on rent-to-own rackets, lease purchase scams and other real estate ripoffs disguised as legitimate sale transactions involving delayed or deferred title closings used in a variety of ways to screw wanna-be homeowners.