Eminent domain proposal for mortgages gains traction in California

[JDPriestly]

El Monte is considering using eminent domain to seize underwater mortgages after Richmond launched its effort. The financial industry gears up for a fight.

California became the center of the national debate over the idea last year when San Bernardino County and two of its cities, Ontario and Fontana, toyed with adopting the strategy. But the Inland Empire communities ultimately shelved the plan, marketed by San Francisco firm Mortgage Resolution Partners, after Wall Street groups voiced strong opposition and little public support materialized.

Now the idea is gaining traction again, with the city of Richmond, Calif., last week becoming the first to press forward. The hardscrabble Bay Area city announced that it had asked the holders of more than 620 underwater mortgages — on which the borrower owes more than the home is worth — to sell the loans to the city at a discount. The city would then write down the debt and refinance the loans for amounts in line with current home values.

If lenders refuse, the city could use eminent domain powers to force the transaction, a move widely expected to bring lawsuits from the financial industry.

Read more about this idea at:

http://www.latimes.com/business/la-fi-0807-eminent-domain-20130807,0,5669410.story

Could this have saved Detroit?

Even if the banks win in court, this gives cities some leverage to force the banks to the settlement table.

[KansDem]

1. George W. Bush used eminent domain to enrich himself

In 1991, the team convinced local voters to approve a tax increase that helped build a new $191 million stadium. The city of Arlington used eminent domain to acquire the property from hundreds of private owners, claiming the stadium was a "public use" just like highways, schools, and government buildings.

Several property owners were lowballed, and court decisions increased their final take. The compensation for one 13-acre plot was increased from $877,000 to $5 million, for example. The city, not the team, was held responsible for making the larger payments.

The stadium clearly benefitted<sic> the Rangers' owners more than anyone else. Bush turned his initial $600,000 investment into $15 million when the team was sold in 1999. But it has produced little of the promised economic benefit to Arlington, and there has never been a real "public use" factor aside from baseball fans' paying their money to see games.

http://www.dailykos.com/story/2005/06/26/125539/-George-W-Bush-enriched-himself-by-eminent-domain

When California proceeds with this strategy, be prepared for the hue and cry of "private property rights" advocates.

[denverbill]

2. Detroit's problem wasn't the housing bubble.

It's the fact that Detroit lost hundreds of thousands of jobs, and eventually, hundreds of thousands of taxpayers.

If you want to blame something, blame NAFTA and the end of tariffs on imported cars.

[JDPriestly]

4. But the city could have taken abandoned properties by eminent domain and sold them on the

market for some money. That would have been an interesting experiment and might have saved the city.

The land has value. The city was not creative enough to declare the blight and just take it. The city could have turned that land into something positive even if it would have meant razing a lot of abandoned houses. Bankruptcy is the wrong answer.

I understand there were a lot of abandoned houses and foreclosures in Detroit. Other parts of Michigan including the suburbs of Detroit did not go bankrupt although the people living there worked in the same factories as did the people living in Detroit. How are they surviving?

Detroit could right now take land by eminent domain and then sell it to people who want inexpensive land on which to build warehouses, factories, etc.

[SoCalDem]

3. This is how the bank bail-out should have been done

When the housing market crashed (mostly fault of bank-mortgage company gamblers) those loans should have been written down IMMEDIATELY..and refi-ed at 4%, so that the people IN the houses could have afforded them.. If a house value fell 30%, they should have gotten vouchers for that 30% to be sent to the bank, which would then cash it in at the federal level.. That would have still gotten them their moolah, but it would have made millions of foreclosed people able to stay in their houses and continue to pay the mortgage (at a more correct level).

They could have built in a mechanism that made part of a sale being paid bsack to federal govt if they tried to flip the house soon after their help.

[JDPriestly]

5. Exactly. Instead, the banks made out like bandits on properties that were overpriced

when they sold the mortgages on them.

This was very poor management. When I write that Obama has no understanding of economics or money, this is one of the situations in which he was conned. Only a fool would bail out the banks and not the homeowners. Only someone who cannot understand the flow of money would do that.

[ProSense]

6. Freddie Mac Considers Legal Action to Block Eminent Domain Plan

Freddie Mac Considers Legal Action to Block Eminent Domain Plan

By Nick Timiraos

Freddie MacFMCC +1.43% executives said Wednesday they were weighing legal action to contest efforts by the city of Richmond, Calif., to use their powers of eminent domain to condemn and purchase mortgages held by investors.

City leaders in Richmond, a working-class suburb on the San Francisco Bay, last week began sending letters to mortgage companies offering to purchase loans that were pooled into securities during the housing bubble as part of a local effort to write down loan balances for homeowners who owe more than their homes are worth. The city said that they would seek to seize those loans through eminent domain if mortgage companies resisted sales at prices determined by the city.

“Our sense is that so-called voluntary loan sales would not be very voluntary. They are loan sales under pressure,” said William McDavid, general counsel of Freddie Mac, on a conference call with reporters Wednesday. “We would consider taking legal action” if it had the backing of its federal regulator, he said.

<...>

Instead of acquiring houses, Richmond and other cities would buy the mortgages from investors at a price below the property’s current market value. They could cut the loan principal to around 97.75% of the property’s market value and then refinance the loan into a government-backed mortgage.

- more -

http://blogs.wsj.com/developments/2013/08/07/freddie-mac-considers-legal-action-to-block-eminent-domain-plan/

[JDPriestly]

7. The point is that the eminent domain power has been if anything broadened by the Supreme

Court in recent years. The threat of eminent domain could push the mortgage companies to bargain reasonably with homeowners. Why should individual homeowners pay the price for market manipulation and fraud in granting home loans on the part of the banks and mortgage companies?

Let the bank investors either compromise or take the loss.

The Obama administrations "paving the way" for the banks was morally and legally questionable. The policy for many decades has been to foster and encourage home ownership. That is a policy that favors economic opportunity for all and ultimately equality.

The Obama administration has been, shall we say, less than true to that decades-old policy.

And that has hurt Main Street and many, many families very badly. I know some of them.

Obama has given lip service to helping homeowners, but thank you, here in California, it is the Depression-era legislation that has kept homeowners who managed to survive the financial onslaught of the mortgage crisis, in their homes.

When it comes to the FDR economic legacy, the current crop of Democrats in D.C. have really run off the rails. And don't even talk about the ignorant Republicans. They are hopeless in this regard.

We will really notice the economic shambles when the people who lost their homes begin to retire. Many of them spent their retirement savings in failed attempts to save their mortgages. I saw that in my family. Everything gone and barely hanging by their nails to a mortgage that is hopelessly higher in cost than the home is in value.

This is the American tragedy of our lifetime: the devastation that government bungling of the mortgage and job crisis has caused. It isn't all Obama's fault, but he really should have backed the public employees in Wisconsin with a little more skin in the game. He sure backed the contractual rights of the folks on Wall Street during the bail-out. If you had a contract awarding you a salary far beyond your value, that bail-out respected that contract. Not so for public workers around the country. This will not be forgotten when we go to vote in 2016.

[ProSense]

8. How was

"The Obama administrations 'paving the way' for the banks was morally and legally questionable. The policy for many decades has been to foster and encourage home ownership. That is a policy that favors economic opportunity for all and ultimately equality."

...this achieved, and what are you referring to when you say "'paving the way' for the banks"?