Skip to comments.From an Unlikely Source, a Serious Challenge to Wall Street
Posted on 07/22/2012 10:52:50 AM PDT by Lorianne
.... theres something brewing that looks like it might be a blueprint to effectively take on the financial services industry: a plan to allow local governments to take on the problem of neighborhoods blighted by toxic home loans and foreclosures through the use of eminent domain.
The plan is being put forward by a company called Mortgage Resolution Partners, run by a venture capitalist named Steven Gluckstern. MRP absolutely has a profit motive in the plan, and much is likely to be made of that in the press as this story develops. But I doubt this ends up being entirely about money.
Heres how it works: MRP helps raise the capital a town or a county would need to essentially buy seized home loans from the banks and the bondholders (remember, to use eminent domain to seize property, governments must give the owners reasonable compensation, often interpreted as fair current market value).
Once the town or county seizes the loan, it would then be owned by a legal entity set up by the local government San Bernardino, for instance, has set up a JPA, or Joint Powers Authority, to manage the loans.
(Excerpt) Read more at rollingstone.com ...
The plan is the mortgage holder only gets what the house is worth and loses the difference between the value and the outstanding mortgage amount.
That’s why it won’t happen. For one thing, the U.S. government is basically owned by the banking industry and therefore will never let such a thing take place without making the banks whole. Secondly, any municipality that does this sort of thing will find that its residents will never be able to get a mortgage in the future because of this added risk of loss for other future lenders.
But sometimes learning the hard way by experience is the only way. I hope San Bernadino Co goes for this.
In some cases where the bank is continuing to pay property taxes on foreclosed homes and maintain them, a municipality that takes homes off the bank's hands may actually be doing the bank a huge favor.
“Maybe I’m missing something here.....”
The “town” stands to gain considerably under this proposal. More subtly, the people who sit on town councils also stand to gain. That’s what makes this such an ominous proposal. You’re looking at mainly the front end of the “deal” instead of the outcome over time.
Using your example, assume the value of the outstanding mortgage is $300K. The home is worth $200K. There have been no mortgage nor property tax payments made for let’s say 2 years. There are several entities involved with this and one should step into the shoes of each to see the combination of motivations involved. Oh sure, the town could foreclose, but for their $7300 in unpaid property taxes, (and remember they didn’t SPEND that money, they just didn’t receive it like they thot they were gonna) they could acquire an ex meth lab that costs $45K (or more) to remediate and bulldoze and is now an empty lot.
While the mortgageholders (which could include actual lenders who remain holding paper and pension funds who own assembled tranches of bundled morts) are going to be righteously PO’ed, to preserve their interest(s) they are faced with the same type(s) of conundrum that anyone facing litigation MUST, and that is the phenomenal cost and uncertain outcome of same. M-holders are looking at (and this is wildly generalistic) the possibility of owning mort paper that has been sold multiple times, that has been stuffed with grade “D” paper when they bought it as grade “B”; with uncertain titles all clouded up via MERS shenanigans and the non-trivial possibility that they will be bumped off their right(s) to foreclose entirely. You are a pension fund. You own a $100 million bundle of morts that were bundled by Snarfball Bank into some incredible toxic soup of 341 mortgages in Inland Empire, CA, on 341 houses, some have been bulldozed because they turned into meth labs or illegal immigrant hotels or homebrew auto scrapyards. To sue the bank that bundled these together is a daunting prospect. In actual case law, I would say that a bare preponderence of cases have had outcomes in accordance with existing law: In other words, many of these robosigning cases where the notes have been separated from the mortgages (eg; the right to foreclose has been clouded by virtue of what happened to notes, or signatures) judges have not necessarily decided by using the statute of frauds, clearly the applicable law. The outcomes of these cases thus have become quite unpredictable.
The long and short of it is, just like with any other other stenchy situation, the lender ultimately has to make a decision whether to take 38.2% of something and eat their loss, or stay in the game for years, where the statue of limitations is coming up here for most of this mort fraud, and possibly take 17.6% 3 years from now. Or less.
The town converts utter nothingness into property-tax paying property at SOME level, whereas it is receivng NOTHING today.
And of course the investors make $20-$30-$40K on each house they so convert and if they have to flip $20K to the dweebs on the local town council to get the deal done, like most political errr, “incentivization”, that’s possibly the best investment they could ever make.
"So Andrew Breitbart is dead. Heres what I have to say to that, and Im sure Breitbart himself would have respected this reaction: Good! [F...] him. I couldnt be happier that hes dead." (On the morning following Mr. Breitbart's death. You see.. Breitbart abandoned liberalism and was me-e-e-e-an.)
Andrew Breitbart: Death of a Douche by Matt Taibbi.
I do not know much of his work.. but it seems to me he's just another ideological issue of 1960s Marxist-Alinksy campus radicals -- psycho spoiled brats all.
Doing the bank a favor? What happens when a bank completely writes off an asset from the books?
Your example also presupposes that the value of the property will never rise and the real estate market will forever be depressed.
The reason the banks are holding foreclosed properties is because (a)they anticipate a rise in the market when Obama is gone.
(b)They will eventually sell the property for something when values stabilize.
(c)They can’t afford the total asset loss incurred by government ‘doing them a favor by taking it off their hands.”
(d)If they have substantial part of their assets tied up in foreclosures which are confiscated, they will have to close or go into bankruptcy because their assets will be below the minimums set by regulations.
An argument that the municipality isn’t doing anything wrong “from a strictly legal standpoint” might be true, but it is an argument that is ethically and morally bankrupt.
Just google “Steven Gluckstern bundler”(no quotes) there are a bunch.
Which, pursuant to a real Tenth Amendment, it was. It is suicide for California to do this. The State will abuse that power and capital will flee to States more protective of private property. Let them do it so that all can see what abuse of eminent domain looks like.
I say that as a fourth generation Californian sitting in the cross-hairs of the green thugs as the juiciest target (in terms of biodiversity) they have ever seen. I'll bet there are idiots among them that truly believe our property is too important for me to keep. The problem for them is: I created and maintain that biodiversity. Without me the land dies in just a few years. So here we sit, an embarrassment to every academic and government "restoration ecology" program they have ever foisted on a taxpayer unaware of what pathetic results they produce. This is the power of Natural Law Competition, imposing discipline on government without any centralized authority to determine and enforce what a "just level" of eminent domain might be.
I support California's right as a State to fail utterly, just as I support a city's right to declare bankruptcy. This primacy of contracts for public employees, negotiated in secret, and established without recourse, is a terrible feature of law without some mitigating form of discipline. To accept that model is to allow one administration of crooked politicians to enshrine for decades a horrific outcome with the only penalty being thrown out of office to a waiting job. Without failure, they'll keep pooling the scale of enforced uniformity, dragging the whole world down with them.
Matt Taibbi is truly an idiot of monumental proportions. He’s a raving, foaming-at-the-mouth anti-capitalist (a glaring flaming scorching red Communist). This just goes to show how naive leftists, like Taibbi, enable crony capitalism.
This whole idea is just a way for an Obama donor and bundler to plunder the assets of mortgage investors and get local municipalities to steal them for him.
Steve Gluckstern, the vicious rapacious greedy bastard behind this scheme, makes the fictional character Gordon Gekko look like a lemonade stand operator.