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.
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.”
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…