private what, now?
Sacramento and Elk Grove officials are exploring a controversial plan to use their powers of eminent domain to seize underwater mortgages from private investors and slash the amounts borrowers owe.
The proposal, pushed by a San Francisco-based group of financiers called Mortgage Resolution Partners, is meant to alleviate the drag on local economies of thousands of homes worth far less than buyers paid. It’s also meant to turn a handsome profit for investors who would advance the vast sums needed to buy the mortgages.
…Loans backed by Fannie Mae and Freddie Mac would not be included.
rly? So who loses in the magykal seizure and transformation of these loans which, might I remind you, are private property?
Private investors would front the money to local governments to buy the mortgages from note holders. In return, they would earn a profit margin of about 7 percent or 8 percent on each transaction – which could potentially produce a return of 20 percent or more annually, Gluckstern said. The profit would come from the difference between what local governments would pay for the mortgages and the amount homeowners would pay to refinance.
Gluckstern gave this example: A homeowner paid $300,000 for a house during the boom. That house is now worth $200,000, with a mortgage balance much higher than that. A city would seize the mortgage and pay the note holder $160,000. Gluckstern contends that would be fair-market value, after the potential costs of foreclosing on the mortgage are deducted. [Remember, 75% aren't going to be foreclosed]
…the homeowner would refinance his mortgage at $190,000, with help from Mortgage Resolution Partners. The extra $30,000 would be split between investors, local government and MRP, which would make a flat fee of $4,500 per transaction.
See? Magykal. If the mortgage still has, say, $200,000 of principal to go, where does that $40,000 go? *p00f* Wealth destruction. And that interest that would have been paid? *p00f* Gone.
But what if the homeowner is still paying on that loan — as 75% still are — recognizing, like an adult, that sometimes bad business decisions hurt? The lender could have made back his whole investment, with interest, according to the deal. The homeowner would lose money, but there ya are. Buying a 3 bed/2 bath tract house for $500,000 should hurt.
Who loses? Eeeeeeevil banks? Not so much. Many of the mortgage holders are investment funds held by retired people and those hoping to retire soon. Yanno, Losers.
Who wins?
Govt wins because it increases its power and it gets $$$.
MRP wins. [where do I invest?]
Here’s what they have to say for themselves:
A number of special interests publicly oppose keeping American families in their homes through purchasing and refinancing their loans using eminent domain. They use fictitious arguments in a transparent attempt to intimidate local governments. Here are their fictions, and the actual facts.
Fiction: Using eminent domain to acquire and refinance deeply underwater mortgage loans is “appalling” and “an abhorrent misuse of the power of the state.”[1]
Fact: It is appalling and abhorrent that our opponents plan to needlessly foreclose on millions of American families and evict them from their homes. Using eminent domain to help families remain in their homes is appropriate and may be the only way to stop the underwater mortgage crisis from continuing to devastate local communities. Opponents believe that it is appropriate to use eminent domain to acquire a house to widen a road, moving a couple out of the home in which they raised a family and a neighborhood of lifelong friends, but it is appalling and abhorrent to purchase loans to save that very home and neighborhood from destruction.
In fact, it is appalling and abhorrent to elevate mere financial assets above the safety and well-being of families, neighbors and communities. Our opponents simply wish to evict families and cherry pick the best houses to buy at steep foreclosure discounts to rent to others for large profits, leaving communities to deal with the discarded homes that remain.
Emotional appeals much?
MRP is a community advisory firm that will assist communities that choose to use eminent domain to purchase underwater mortgages. MRP will earn a government approved flat fee per mortgage — the same fee that any major bank earns today if it successfully modifies a loan under the federal government’s Home Affordable Modification Program. MRP is not a venture capital firm and will not earn any profit share.
BS tap dance much? “profit share” ≠ “profit”
…a profit margin of about 7 percent or 8 percent on each transaction – which could potentially produce a return of 20 percent or more annually…
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16 Comments!
Claire, I saw this story a little while back (at which point steam came out of my ears)..
You’ve got it better organized and commented that the writeup I saw. So thanks on that.
Actually, there’s no good guys to be found anywhere here.
Not to beat to death the obvious, the appetite of local governments to abuse eminent domain (and enrich their cronies) has become a plague in the last couple of decades, and this latest outrageous twist simply underscores… well, words fail me.
I’m not sure that using government power to stiff the current mortgage holders is any more outrageous than the Obama administration’s seizing auto companies and stiffing the bond holders though…
A final thought about those current mortgage holders, though:
Yep, and that’s both outrageous, unfortunate, etc. But:
* Retirees are some of the people who’ve been voting these people into office, aren’t they?
* And they’re some of the people who helped vote into office the presidents who’ve been making federal bench appointments that haven’t been much use on eminent domain abuse issues for years?
* And nobody forced those investment funds to buy inflated and unsustainable mortgage assets did they?
* Sure mortgages have traditionally been considered a safe investment, but there were warning signs for years. The fund managers get paid handsomely to make prescient investment decisions (which they rarely do — the prescient part, that is) — or at least to make common sense decisions.
Sure this is outrageous, and exacerbates a really bad situation for almost everyone except the stake holders in this bit of public larceny.
But… I’m not going to have much sympathy for anyone in this….
…. especially for the people in Sacrament, Elk Grove and anywhere else who almost certainly won’t vote these thieves out of office and vote in some honest and responsible government … they probably wouldn’t even recognize what that looks like if they did get the chance for it.
Oh yeah, and the pretense that this is for the homeowners… (*goes off laughing*)
^ But hey, let’s not worry about *all* those retirement funds… the ones for public employees will no doubt get bailed out by the tax payers anyway… which means that this loss ultimately gets shouldered by the very people they are pretending to help.
Yeah, the sharks are sniffing around, and the pols are growing fins.
My gut instinct informs me that nothing short of total bankruptsy for California will clean out the RATz that have a ONE PARTY rule here! Re-electing Moonbeam is exhibit A! Proposing this scheme is a fantasy that will simply perpetuate our corrupt government for longer than it should. And corruption of principles is what led us to where we are.
This eminent domain scheme is bullshit. It avoids mentioning that the original lenders and its investors will take it in the ass with huge losses.
The KELO decision, by the way, ulitimately left the seized properties as fucking garbage dumps, which they still are today!!!!!
California`s Ship of State is heading for the rocks and the helmsman isn`t qualifed to row a skiff……………………….(…editorial change. Make that the “fucking helmsman”…)
If you check political donation lists, I’ll betcha Glucksteal and his cronies are heavy Dem contributors. Carpetbaggers like him should be tarred and feathered or hanged. I never met the man, but he is pond scum, and I hate him.
He no doubt was inspired by Uhbama’s shanking of the GM bond and stock investors to save the unions. If we continue to abrogate contract and property laws, we will descend into anarchy where the guy in charge is the one with the most thugs with guns.
Official theft and breech of contract.
You know … looters.
^ In cases of martial law, aren’t looters shot on sight?
Dick (5): If we continue to abrogate contract and property laws, we will descend into anarchy where the guy in charge is the one with the most thugs with guns.
You have just described a major part of the problem in the third world.
…so it is not just Greece we are plunging toward, it is much of Africa, Asia, and parts (most?) of Latin America. It is a Democrat value to first turn us into Venezuela, and then into Somalia.
Third World people (and others too) come here fleeing the very thing these predatory assholes want to turn us into. What a wonderful irony.
Let’s just hope we go bankrupt after January, and when Moonbeam calls Romney, Romney refuses to accept the charges.
It will suck, but it will suck less than letting them keep digging.
I don’t know how to get rid of Kelo, but it needs to go and it needs to go quick.
Speaking of government over reach and intrusion, this sounds like a real pain in the ass.
http://www.ynetnews.com/articles/0,7340,L-4267954,00.html
Is this what these people think?
“I thought it was worth $300K to me when I bought it, and I borrowed money from others to do so. Now other people don’t think that it is worth more than $200K so I can’t sell it for a profit–and would end up owing the difference on a sale. In come sleazy bankers who want to work with my sleazy government to use government powers, created by the Kelo decision, to take my house away from me and only pay me $160K–but somehow they will force the people to whom I owe more than $200K to take what I give ‘em. …and then I get to borrow money from the sleazy bankers who are ‘in’ with the government to buy my house back with the loan that they arrange. Is this a third-world country, or what? Heh.”
It’s scary how it seems it was all planned to break down this way.
Thinking about this……..if the overall note is reduced to current FMV, and is accepted by the municipalities/counties/states, those entities have accepted the fact that the underlying asset is overvalued……which would then result in a TAX APPEAL.
REDUCING the overall tax collection would be anti-Kelo.
^ NJ Mike, good point. Wonder if any of the geniuses involved in this have thought that one through.
Of course, a tax appeal seems like a possibility in an era of deflated home “values” regardless of the course of this particular little matter, so maybe this is how they try to make up for it.
Strikes me that we’ve about reached the point where big government / big spending folks both in and out of government have pretty much reached the end of “sustainability,” and every desperate measure to keep a sinking ship afloat simply results in taking on more water….
So what happens to the investors in the bank? They take it in the shorts from the government? Why should investors in this program be favored over investors in the bank making the loan?
Other than who they make political donations, too, mind you. Although I’ll guess that the investors in the very banks making the original loans include pension funds, both public and private.
Think of this additional advantage for the state: it will prevent these home “owners” from selling out later and moving to a friendlier state because no one in those municipalities will be able to get a mortgage to buy their current house,
^ yup, good point.
If you want to be the ruling class, it is good to have a captive indentured class.