Elizabeth Warren has condemned house-flipping and profiting from foreclosures; but she built wealth by doing it.
As you will know if you read this blog the other day, I pretty much despise the National Review as a pseudo-conservative traitor rag. But I can’t deny this story about Elizabeth Warren’s house-flipping career in the nineties is quite fun to read: “Elizabeth Warren Bought Foreclosed Homes to Make a Quick Profit.”
There is nothing intrinsically wrong with what Elizabeth Warren did. There are many bankrupt former house-flippers (or would-be house-flippers who never stayed solvent in their first attempt) in this country. When you buy a house in the hope of a quick sale for a profit you are assuming massive risk in the hope of a massive reward. But if the house doesn’t sell as quickly as you plan, or doesn’t sell at as high a price as you planned, and/or you run into repair/regulatory issues between the time you purchase the property and the time you get it fixed up, you can ruin yourself.
So it is obvious why people sell their homes to house flippers. They get the cash up front and all questions of luck and probability are removed. They don’t have to worry about it.
This benefit comes at a price. In exchange for getting someone else to take the risk you also have to offer a steep discount on what you are willing to sell the house for. Many homeowners decide, as the saying goes, that a bird in hand is worth two in the bush. The home-flipper is willing to give up the bird (cash) he or she has (or has borrowed) in order to get two or more birds in the bush.
A lot can go wrong in this scenario, especially if the government is creating an environment of easy credit (lots of banks willing to loan money in order to buy homes) and political promotion of home-ownership. But house-flippers don’t cause such bubbles and crashes as much as they are misled by them.
For a time in the nineties, Elizabeth Warren made some good money flipping houses.
Warren bought and sold at least five properties for profit at a different time in her life, before the cratering economy and a political career made her a star. Her life story has been the subject of much interest, and her 2014 memoir, A Fighting Chance, chronicled her rise from humble beginnings in small-town Oklahoma and her struggle to make ends meet. It didn’t much mention, though, the early 1990s, years when her children were teenagers and she was once again happily married. These are years when she wasn’t yet the multimillionaire she is today, and, she has said, she was voting Republican.
As a professor of law at the University of Pennsylvania, and later as a visiting professor at Harvard Law School, she was doing well for herself, building both her professional profile and her wealth. She owes at least part of her considerable financial success, it seems, to snapping up these properties in her native Oklahoma and turning them for a profit — though today that’s not a practice she endorses for the many people looking to emulate her success.
Not only has Warren not talked about this part or her financial success, but she has actively condemned the idea of trying to make money that way:
In her 2006 book All Your Worth, co-authored with her daughter, Amelia, Warren lists as a top myth the idea that “you can make big money buying houses and flipping them quickly.”
Since several of the homes that Warren made money off of were foreclosed homes, her statements on foreclosure are also worth remembering:
In a 2002 book, The Fragile Middle Class, co-authored with Teresa Sullivan and Jay Lawrence Westerbrook, she wrote that foreclosures are “notorious for fetching low prices.” And as a professor at Harvard Law School, in the wake of the financial crisis, Warren served as a member of the congressional panel overseeing the Troubled Asset Relief Program.
The panel produced, among other things, a report on the foreclosures taking place across the country. It began with a paean to the place of the home in American life: “Foreclosures are about the home,” it said, which is “the physical and emotional nexus of many households as well as the centerpiece of many Americans’ finances.” Foreclosures, it concluded, “can harm other homeowners both by encouraging additional foreclosures and by reducing home sale prices, while decreased property values hurt local businesses and reduce state and local tax revenues.”
This isn’t just nonsense; it is hypocrisy.