California cities eye plan to seize mortgages

Associated Press ^ | July 16, 2012 | AMY TAXIN and CHRISTINA REXRODE

[magellan]

In the foreclosure-battered inland stretches of California, local government officials desperate for change are weighing a controversial but inventive way to fix troubled mortgages: Condemn them.

Typically, eminent domain has been used to clear property for infrastructure projects like highways, schools and sewage plants. But supporters say that giving help to struggling borrowers is also a legitimate use of eminent domain, because it's in the public interest.

Under the proposal, a city or county would sign on as a client of Mortgage Resolution Partners, then condemn certain mortgages. The mortgages are typically owned by private investors like hedge funds and pension funds.

Mortgage Resolution Partners will focus on mortgages where the borrowers are current on their payments but are "under water," meaning their mortgage costs more than the home is worth. After being condemned and seized, the mortgages would be rewritten based on the homes' current values. The borrowers would get to stay, but with cheaper monthly payments. The city or county would resell the loans to other private investors, so it could pay back the investors who funded the seizure and pay a flat fee to Mortgage Resolution Partners.

Rick Rayl, an eminent domain lawyer in Irvine, Calif., who is not connected to the company, isn't so sure.

"The lenders are going to be livid," he said. He thinks the plan could have unintended consequences, like discouraging banks and other lenders from making new mortgage loans in an area.

[magellan]

I know there is another posting covering another article about this. But this is broader article describing the plan.

This reads like something out of Atlas Shrugged.

This would not even warrant consideration if not for Kelo v. City of New London, and Justice Anthony Kennedy's decision with the majority.

Of course, their is a corporatist intermediary, Mortgage Resolution Partners, who will get a cut.

I honestly hope they try to do this, because this seems beyond the Kelo decision, which was based on property tax revenues. It seems this could open up another legal battle which could offer the chance to limit the impact of Kelo.

[BuffaloJack]

Government Ponzi Scheme.

[Casie]

"...because it's in the public interest." Those 6 words should be grounds for automatic dismissal from any government position.

[silverleaf]

robbing one set of investors to raise cash to pay off a second set of investors is a job best left to the pros

Maybe these Cali municipal govts can get Jon Corzine or Bernie Madoff to advise them, or perhaps “Mortgage Resolution Partners” already has its own Ponzi pros on staff

[Pikachu_Dad]

Just another scheme for Government to get its snout into controlling all aspects of the market.

[deoetdoctrinae]

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[chuckee]

The banks would be crazy not to redline every city that passes such a law. Property values would decline to the price of a quart of milk.

[jtal]

He thinks the plan could have unintended consequences, like discouraging banks and other lenders from making new mortgage loans in an area.

ya think?

No worries, the feds will just order them to do it.

how do I get some of that free money from Obama's stash?

[Principled]

This is nothing more than HARP 2.

The only problem is that SOMEONE has to suffer the loss. In HARP 2, it is the taxpayer. In this scheme, it will be the lenders. The lenders will be paid “fair market value” per the eminent domain condemnation - which we all know will not be fair market value.

The result will be that credit will become tighter in any market where the risk of falling housing rices is real. Who wants to invest in an instrument that is likely to be taken by eminent domain at a below market price?

Idiots - just plain dumb.

imo

[rstrahan]

The lenders would essentially red-line California, and move their lending operations out of California. This would force California to start its own state-wide lending operations, with no capital to support the lending operations. Given its political bent, they would make loans to everyone, regardless of ability to pay. Thus, within 5 years, a new wave of defaults would further bankrupt California.

[Notary Sojac]

Someone in a California city hall will figure out that this plan will result in a major drop in assessed valuations and thus in property taxes. So it will fail to be enacted. They may be corrupt but they’re not stupid.

[ThunderSleeps]

So let me see if I've got this right...

Mortgage Resolution Partners will focus on mortgages where the borrowers are current on their payments...

...After being condemned and seized...

...The city or county would resell the loans to other private investors, so it could pay back the investors who funded the seizure...

So it sounds like if you're a lender in that area, you're screwed. Also, try re-selling any of those properties later, with a "condemned" bogie in the record. Heck, try selling any property in the area run by such an out of control and intrusive government.

[paul51]

Can’t even manage their own affairs yet they come up with a grand scheme to bail out homeowners.

[lwd]

I agree but are the banks even really loaning money now? Every loan I've heard about lately is through Fannie Mae.

If these homeowners are current on their payments, what's the problem? So their property is worth less than it was when they bought it. So is some stock I purchased last year. Big deal.

[Eric in the Ozarks]

From the same Obama who’ll pay your utility bill...

[The Working Man]

In my mind this is just another step and possibly a logical one if you look at it from a skewed perspective. The minute we the citizenry gave the Government, “any Government, local, state, Fed or School district”, the right and ability to charge PROPERTY TAXES of any kind, we gave them the property. They can and will take, steal or appropriate your personal property if they can come up with a good rationalization.

[adorno]

because it's in the public interest

That phrase or clause, could be used to justify any action by government, without regard to consequences. When the consequences arrive, then, another "public interest" set of actions would be enacted to deal with those government created problems, and so, it would be total control by government, of anything that, could be justified as "in the public interest". The CRA was in the public interest, and the consequences of it was, the collapse of the housing market, and now, the collapse, which caused many to have underwater mortgages, is being "fixed" via another "public interest" government project. It's a vicious cycle, and the sheep aren't smart enough to notice a dangerous pattern of destruction to the economy, and a destruction of wealth, and a destruction of their livelihood.

Somebody ought to think of a way to render certain government entities from issuing edicts which are "not in the public interest", such as what those California cities are proposing to do. "In the public interest" should not be a one-way street.

[MasterGunner01]

“They may be corrupt but they’re not stupid.”

As Earl Stanley Gardner’s most famous fictional lawyer, Perry Mason”, said: “You have assumed a fact not in evidence.”

[HangnJudge]

The lenders would essentially red-line California, and move their lending operations out of California. This would force California to start its own state-wide lending operations, with no capital to support the lending operations. Given its political bent, they would make loans to everyone, regardless of ability to pay. Thus, within 5 years, a new wave of defaults would further bankrupt California.

Cogent, to the point, brutally true

[chuckee]

Some might argue that lenders in those cities passing such laws can compensate for the lending disadvantage by affixing higher interest rates in such cities to overcome the prospect of the city condemning the mortgage in the public interest. But then again no sooner would the mortgage issue that the city would reduce the interest rate “in the public interest” as being outside the range of interest rates compared to cities without such an inane law. I guess we can put that argument in the circular reasoning file.