(Photo: Chip Somodevilla/Getty Images; Illustration: Ian Hurley)

Elizabeth Warren took aim last week at another pillar of Wall Street's empire: the rental housing market. In a portion of her updated version of her ambitious 2018 housing bill, Warren proposed a check on the unregulated takeover of rental housing by the country's biggest investment firms. Instead of allowing Wall Street-backed developers to flip any distressed and foreclosed mortgage into a single-family rental unit, her bill would require the government to help keep the majority of these homes in the possession of individuals, community groups, and affordable-housing developers by setting aside a supply of mortgages that Wall Street can't touch.

Warren's bill seeks to chip away at predatory mortgage-flipping practices, by requiring the Federal Housing Authority to sell a minimum of 75 percent of single-family properties acquired through foreclosure to owner-occupant buyers or to community groups who will rehab the properties and sell them to owner-occupants. The bill also puts limitations on the sale of non-performing loans—those that a borrower has failed to make payments on—by the Department of Housing and Urban Development (HUD), and requires greater transparency with borrowers. And, it offers support for families whose housing wealth was destroyed by the financial crisis by investing $2 billion in borrowers with negative equity on their mortgages, predominantly in suburban and rural communities.

The Wall Street practice Warren is targeting—flipping distressed mortgages into rentals—took off with the Recession. As over nine million families lost their homes to foreclosure, private-equity firms swooped in, grabbing up hundreds of single-family home mortgages for cheap and edging other potential buyers out of the market. Anticipating the emergence of a vast new population of renters—whose credit scores were crippled by the crisis—these firms quickly converted the homes into rentals, bundled them into securities, and sold off shares to eager investors. The market took off: Across the 50 largest U.S. metros, the number of single-family rentals increased by 52 percent in the decade following the mortgage crisis, according to research by Dan Immergluck, a professor at Georgia State University—much higher than the 17 percent increase in multifamily rentals (which are significantly less likely to have been converted from foreclosed houses).

The footprint of Wall Street-backed firms in the market remains relatively small, on a national scale, with approximately 200,000 out of 14 million single-family rental homes in the country under their domain. But in areas most deeply affected by the foreclosure crisis, the impact has been significant. In Oakland, California, research by a local community organization in October of 2011 found that investors had acquired 42 percent of homes that were foreclosed upon since 2007. In Atlanta, as much as 25 percent of monthly home purchases made in 2013 in the city were made by institutional investors.

In large part, these investors have the federal government to thank for their continued success: In 2012, as the foreclosure crisis continued to ripple through the country's housing markets, the government launched a pilot program selling foreclosed properties from Fannie Mae to investors, in bulk. Smaller buyers, affordable housing developers, and community groups had no chance to compete.

"Fannie Mae could have sold them in a way that maximized neighborhood revitalization," says Elora Raymond, assistant professor of city and regional planning at Georgia Tech, who wrote a paper showing disproportionate eviction filings by corporate landlords in Atlanta. "But what they did was sell them in a way that maximized their bottom line."

These transactions have resulted in fewer single-family houses available to prospective owners and fewer single-family rentals available to low-income people. According to one 2014 study, for example, less than 1 percent of the properties owned by single-family rental giant Invitation Homes, one of the largest private-equity groups in the world, are occupied by tenants with Section 8 vouchers.

The transactions have also resulted in a pattern of evictions, rent hikes, poor maintenance, and exploitative fines by property managers whose bottom line is dictated by investor pressure to generate ever-greater returns rather than by tenants' well-being, or even safety.

In Atlanta and Los Angeles, dozens of tenants of single-family rentals owned by Colony Starwood Homes (which has since changed its name to Starwood Waypoint Homes) told Reveal about suffering through lack of heat, leaky roofs, and even a snake infestation in the case of one resident, with little or no help from their landlord. In 2015, the property manager evicted nearly one third of all of its tenants in the Atlanta area.

In Memphis and Atlanta, reports have shown that Wall Street-backed landlords file for eviction at least twice as often as other rental home property managers. A report by the non-profit Alliance of Californians for Community Empowerment found that corporate landlords, on average, demand rent increases of almost double the national average. The Atlantic reported last month that one large company, American Homes 4 Rent, increased the money it collected from tenants for repairs after they moved out by more than 1,000 percent between 2014 and 2018.

In the decade after the mortgage crisis, D.C. has repeatedly rewarded private-equity firms in their flipping of distressed mortgages. Between 2010 and 2016, HUD sold off over 100,000 distressed-mortgage loans to private-equity firms at auctions, the majority of which ended up in foreclosure. In 2017, Fannie Mae agreed to guarantee a $1 billion refinancing deal for Invitation Homes.

"Single-family rentals have always been a large part of the rental market in America. And there's nothing wrong with them, per se," explains Julia Gordon, executive vice president of the National Community Stabilization Trust, which helps community-based groups acquire abandoned and distressed properties. The problem arises, she says, out of the preferential financing and terms granted to corporate developers: "They get their money at a very affordable rate through access to securitization markets and access to Fannie and Freddie. All of these are ways to make it cheaper to access capital to acquire homes in ways that are unavailable to an individual or a non-profit. But at the same time none of that comes with any strings attached to keep that housing affordable."

Whether Warren's proposal would solve these problems is an open question. Proponents, on the one hand, highlight how the policy will benefit groups historically excluded from the housing market.

"It's very positive that a legislator is talking about this issue because so many of the decisions that have been made around the dispossession of distressed properties and distressed notes have been made without a lot of public input," Gordon says. "What's important is the focus on trying to keep homes that were traditionally owner occupied homes in that inventory."

Putting foreclosed and distressed properties in the hands of individuals and non-profits would especially benefit populations long excluded from homeownership: namely, those who live in predominately African-American neighborhoods that tend to have higher rates of foreclosure, and, therefore, greater levels of private equity investment in SFRs.

But other experts are skeptical of Warren's proposed solutions. "As much as I love the idea of non-profits doing this, it's really, really hard to do and requires a set of skills that they're not necessarily going to have," says Andrew Jakabovics, vice president for policy and development at Enterprise Community Partners, a non-profit that develops affordable housing.

Jakabovics also warns that non-profits might not have the money for these projects: Buying distressed properties and turning them into livable rental housing can be an expensive task. "There isn't enough non-profit capacity in every place to take these properties, and there may not be a ready pool of owner-occupants in some places either," he says. Indeed, this was true in the immediate aftermath of the mortgage crisis, as millions of Americans watched their savings disappear.

A more robust policy might include substantial investment in non-profit developers to make them more viable buyers of distressed properties, and additional support to owner-occupants to help them stay in their homes. After decades of housing policy that has prioritized developers and bankers over buyers and renters, such a policy is no doubt going to require a long fight. But for now, it is a message from a presidential hopeful straight to Wall Street: People are watching.