A Local Govt Fix to the Housing Mess?

[Paratus]

Rolling Stone Article

Under the proposal, towns would essentially be seizing and condemning the man-made mess resulting from the housing bubble. Cooked up by a small group of businessmen and ex-venture capitalists, the audacious idea falls under the category of "That’s so crazy, it just might work!" One of the plan’s originators described it to me as a "four-bank pool shot."

Here’s how the New York Times described it in an article from earlier this week entitled, "California County Weighs Drastic Plan to Aid Homeowners":

Desperate for a way out of a housing collapse that has crippled the region, officials in San Bernardino County … are exploring a drastic option — using eminent domain to buy up mortgages for homes that are underwater.

Then, the idea goes, the county could cut the mortgages to the current value of the homes and resell the mortgages to a private investment firm, which would allow homeowners to lower their monthly payments and hang onto their property.

I’ve been following this story for months now – I was tipped off that this was coming earlier this past spring – and in the time since I’ve become more convinced the idea might actually work, thanks mainly to the lucky accident that the plan doesn’t require the permission of anyone up in the political Olympus.



Read more: http://www.rollingstone.com/politic...allenge-to-wall-street-20120720#ixzz21UXk5LIz

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. I've heard many arguments on both sides about this particular approach to the eminent domain concept. But either way, I doubt this ends up being entirely about money.

“What happened is, a bunch of us got together and asked ourselves what a fix of the housing/foreclosure problem would look like,” Gluckstern. “Then we asked, is there a way to fix it and make money, too. I mean, we're businessmen. Obviously, if there wasn’t a financial motive for anybody, it wouldn’t happen.”

Here’s 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.

At that point, the JPA is simply the new owner of the loan. It would then approach the homeowner with a choice. If, for some crazy reason, the homeowner likes the current situation, he can simply keep making his same inflated payments to the JPA. Not that this is likely, but the idea here is that nobody would force homeowners to do anything.

On the other hand, the town can also offer to help the homeowner find new financing. In conjunction with companies like MRP (or the copycat firms like it that would inevitably spring up), the counties and towns would arrange for private lenders to enter the picture, and help homeowners essentially buy back his own house, only at a current market price. Just like that, the homeowner is no longer underwater and threatened with foreclosure.



Read more: http://www.rollingstone.com/politic...allenge-to-wall-street-20120720#ixzz21UY51Gvh

Apparently Wall St is already pissed about this and is threatening to barr any county that does this from Wall St. financing.

I say screw em. This looks like a great way to pop the rest of the bubble and get back to where we should have been.

 

[Lithium381]

who stands to profit from this? are the taxpayers going to be on the hook for this? i've heard about this on various radio programs and it is getting a very bad wrap

 

[Paratus]

The profit would go to the local banks and entrepreneurs who front the money. The banks holding the current loans, (BOA, Fanny, etc) would take it in the shorts

 

[bfdd]

As far as I'm concerned the American people paid their debt to the financial institutions when they took "stimulus" or "bailout" money. All debt in America should have been wiped clean with that motion.

 

[Matt1970]

"MRP helps raise the capital a town or a county would need to essentially “buy” seized home loans from the banks and the bondholders"

So that's the hitch. Where is that money going to come from?

 

[simpletron]

"MRP helps raise the capital a town or a county would need to essentially “buy” seized home loans from the banks and the bondholders"

So that's the hitch. Where is that money going to come from?

here's how this works in a nutshell:

1. Big investor loans money to local government.(through MRP, who will make money on the fees)
2. Local government uses eminent domain to seize the mortgage and pay them fair market value of the property.(mortgage holders lose a lot on money on underwater properties)
3. Local government sells property back to homeowner at fair market value.
4. Local government pays off loan to big investor.

Big investor earned interest on the loan, thus winner
Mortgage holders takes it up the ass.
Local government paid interest to big investor, but gains many homeowners who are in better financial shape.(plus/minus)
homeowners are no longer under water, thus winner.

The big risk in this plan for local government is be unable to resell all the properties. If local government executes this plan before the market bottoms, the government could become the underwater homeowner.

 

[Paratus]

I like the idea because so far there has been no impact to the poor/criminal decisions made by the banks. There are consequences when a lender intentionally bypasses due diligence.

 

[MovingTarget]

As far as I'm concerned the American people paid their debt to the financial institutions when they took "stimulus" or "bailout" money. All debt in America should have been wiped clean with that motion.

This. I could get behind this plan. Maybe this kind of 'reset' is just what housing needs.

 

[Anarchist420]

the government could become the underwater homeowner

Then taxpayers would suffer for it.

2. Local government uses eminent domain to seize the mortgage and pay them fair market value of the property.(mortgage holders lose a lot on money on underwater properties)

That won't uphold in the pro-14th Amendment US SC we have.

This wouldn't have been a purely terrible idea if the banks hadn't been bailed out in 2008, but since they were, I think this is a bad idea. If only the banks had just been allowed to fucking fail in 2008... if only. Instead, the can was just kicked down road and when they can no longer be bailed out, it's going to be a million times worse than it would've been if they had just been allowed to fail in 08.

 

[DucatiMonster696]

This. I could get behind this plan. Maybe this kind of 'reset' is just what housing needs.

This is not going to work. Unless banks are allowed to keep the money they were given and thus are allowed to drop their liability to pay back the "bailouts" to government.



As for this proposal mentioned via the OP well I can envision as sorts of shenanigans occurring at the local level which would cause this stupid idea to blow up in the faces of those hoping for a quick fix. I also can understand why the major banks would be against this and smaller banks and local investors would love this so called "solution" as it would allow them to target the assets of much larger banks and claim them via imminent domain at extremely discounted prices.

 

[Matt1970]

here's how this works in a nutshell:

1. Big investor loans money to local government.(through MRP, who will make money on the fees)
2. Local government uses eminent domain to seize the mortgage and pay them fair market value of the property.(mortgage holders lose a lot on money on underwater properties)
3. Local government sells property back to homeowner at fair market value.
4. Local government pays off loan to big investor.

Big investor earned interest on the loan, thus winner
Mortgage holders takes it up the ass.
Local government paid interest to big investor, but gains many homeowners who are in better financial shape.(plus/minus)
homeowners are no longer under water, thus winner.

The big risk in this plan for local government is be unable to resell all the properties. If local government executes this plan before the market bottoms, the government could become the underwater homeowner.

I see a lot of Mortgage Holders sueing over the eminent domain legality here. Correct me if I am wrong here but eminent domain needs to be for a government project or for increased tax revenue.

 

[Anarchist420]

Correct me if I am wrong here but eminent domain needs to be for a government project or for increased tax revenue.

You're definitely wrong... Transcanada has already seized private property that's not rightfully their own.

 

[Cerb]

The profit would go to the local banks and entrepreneurs who front the money. The banks holding the current loans, (BOA, Fanny, etc) would take it in the shorts

OTOH, the banks are already getting that treatment more slowly, from the current borrowers, and they did choose to get themselves (and everyone else) into this mess.

I like it. I can see room for abuse, sure, and the local governments won't make much, if any, money on it, but if they won't be losing money (or if their risk is very low, like administering certain aspects of the programs), and it offers a chance to improve the housing market by getting the banks off the houses, I think it is a risk worth taking.

Unless there are some hidden gotchas for the government(s) involved, the general description looks to me like it offers a fairly balanced risk to everyone involved except, for the home owner, but they are already stuck in a bad situation (they are stuck in a bad rent to own deal, despite typically being called owners). Towards that end, maybe put the proposal to a popular vote, to solidify support.

 

[DucatiMonster696]

OTOH, the banks are already getting that treatment more slowly, from the current borrowers, and they did choose to get themselves (and everyone else) into this mess.

I like it. I can see room for abuse, sure, and the local governments won't make much, if any, money on it, but if they won't be losing money (or if their risk is very low, like administering certain aspects of the programs), and it offers a chance to improve the housing market by getting the banks off the houses, I think it is a risk worth taking.

Unless there are some hidden gotchas for the government(s) involved, the general description looks to me like it offers a fairly balanced risk to everyone involved except, for the home owner, but they are already stuck in a bad situation (they are stuck in a bad rent to own deal, despite typically being called owners). Towards that end, maybe put the proposal to a popular vote, to solidify support.

The resulting consequences of any action taken by government matter more so then the intentions of any plan. Any potential negative economic results from this plan will not be mitigated by a "popular vote" and in some ways could be worsen the effects via politics which muddle up the waters making it difficult to understand what exactly is being proposed. In the end one should always tread lightly when someone pushes a "Quick Fix" involving government (especially local governments which can be more corrupt then state or federal government) to any problem that took decades to create and eventually pop.

 

[Paratus]

I see a lot of Mortgage Holders sueing over the eminent domain legality here. Correct me if I am wrong here but eminent domain needs to be for a government project or for increased tax revenue.

I'm not sure, but there was the infamous case the SC took where they bought out homes just put a business in. The SC ruled as long as the local govt could show a benefit they could take it. I'm spacing on the ruling.

I seem to remember business being very happy to allow local govts to displace folks for them. That may now come home to bite them in the ass.

 

[Cerb]

The resulting consequences of any action taken by government matter more so then the intentions of any plan. Any potential negative economic results from this plan will not be mitigated by a "popular vote" and in some ways could be worsen the effects via politics which muddle up the waters making it difficult to understand what exactly is being proposed. In the end one should always tread lightly when someone pushes a "Quick Fix" involving government (especially local governments which can be more corrupt then state or federal government) to any problem that took decades to create and eventually pop.

Agreed. The vote part is about the specific politics/psychology: if it won by a decent margin (say, 2/3 majority), residents would generally be more likely to want to deal with it, and try to fix it, than rail against it entirely, IMO (people highly against it would have hot air to blow over it, but they wouldn't do much more, knowing that they were minority). If elected officials decide to do it on their own and there are screwups (inevitable, to some degree, in some quantity), the likelihood of a backlash against it would be higher. If it turned out a plain bad idea, that's one thing. But, if it's a good idea that needs some tuning over its early life to strike the right balance (borrower, state, and investor decision-making power balance, and also unexpected costs to the government enacting the plan), I wouldn't want to it get a bad stigma over being forced into place.

 

[dmcowen674]

I see a lot of Mortgage Holders sueing over the eminent domain legality here. Correct me if I am wrong here but eminent domain needs to be for a government project or for increased tax revenue.

You are wrong as usual.

The Supreme Court gave full Eminent Domain control to private Corporations in 2005.

Read and learn:

http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London

Kelo v. City of New London, 545 U.S. 469 (2005)[1] was a case decided by the Supreme Court of the United States involving the use of eminent domain to transfer land from one private owner to another private owner to further economic development. In a 5–4 decision, the Court held that the general benefits a community enjoyed from economic growth qualified private redevelopment plans as a permissible "public use" under the Takings Clause of the Fifth Amendment.

The case arose in the context of condemnation by the city of New London, of privately owned real property, so that it could be used as part of a “comprehensive redevelopment plan.” However, the private developer was unable to obtain financing and abandoned the redevelopment project, leaving the land as an empty lot, which was eventually turned into a temporary dump[2].

================================================
All those people were kicked out of their perfectly fine homes for nothing as the project never got off the grund other than their houses being bulldozed.

 

[Paratus]

You are wrong as usual.

The Supreme Court gave full Eminent Domain control to private Corporations in 2005.

Read and learn:

http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London

Kelo v. City of New London, 545 U.S. 469 (2005)[1] was a case decided by the Supreme Court of the United States involving the use of eminent domain to transfer land from one private owner to another private owner to further economic development. In a 5–4 decision, the Court held that the general benefits a community enjoyed from economic growth qualified private redevelopment plans as a permissible "public use" under the Takings Clause of the Fifth Amendment.

The case arose in the context of condemnation by the city of New London, of privately owned real property, so that it could be used as part of a “comprehensive redevelopment plan.” However, the private developer was unable to obtain financing and abandoned the redevelopment project, leaving the land as an empty lot, which was eventually turned into a temporary dump[2].

================================================
All those people were kicked out of their perfectly fine homes for nothing as the project never got off the grund other than their houses being bulldozed.

That's the one I was thinking of. Thanks

 

[Fenixgoon]

anyone else see this as a case of "responsible people get screwed over once again"?

 

[Pray To Jesus]

anyone else see this as a case of "responsible people get screwed over once again"?

Might as well screw somebody LOL

 

[Pr0d1gy]

Wall Street would tank the entire market just to fuck over the local governments for doing this. They would never let it happen.

 

[Exterous]

Might as well screw somebody LOL

Yes, but if they would screw over someone else for once it would be nice

 

[Genx87]

Govt abusing its power of eminent domain?
Investors selling mortgages via govt power?

What could possibly go wrong?

 

[Genx87]

That's the one I was thinking of. Thanks

Yup and that ended in complete disaster. I am sure this will fare much better.

 

[Paratus]

Just the fact that this idea exists is great. Wall St. will either have to lose the bubble value on the house, spend a shit load of money to stop it in the courts, or spend a shit load of money bribing ever county official in every county in the country who tries it.

Should add a couple of tenths of percent to the GDP.