FONTANA, Calif. (AP) — 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. (That can't run their cities but now they can run the local real estate market, right!)
Officials from San Bernardino County and two of its cities have formed a local agency to consider the plan. But investors who stand to lose money on their mortgage investments have been quick to register their displeasure. (What ever happened to the free market?)
Discussion of the idea is taking place in one of the epicenters of the housing crisis, a working-class region east of Los Angeles where housing prices have plummeted. Last week brought another sharp reminder of the crisis when the 210,000-strong city of San Bernardino, struggling after shrunken home prices walloped local tax revenues, announced it would seek bankruptcy protection. (If people don't have jobs they are not going to buy houses.)
Now — and amid skepticism on many fronts — officials from the surrounding county of San Bernardino and cities of Fontana and Ontario have created a joint powers authority to consider what role local governments could take to stem the crisis. The goal is to keep homeowners saddled by large mortgage payments from losing their homes — which are now valued at a fraction of what they were once worth. (Create some jobs so people can pay those mortgages. Citizens live within your means. No more bail outs! We are about another three to four years away from a real recovery, leave things alone.)
"We just have too much pain and misery in this county to call off a public discussion like this," said David Wert, a county spokesman.
The idea was broached by a group of West Coast financiers who suggest using the power of eminent domain, which lets the government seize private property for public use. In this case, they would condemn troubled mortgages so they could seize them from the investors who own them. Then the mortgages would be rewritten so the borrowers would have significantly lower monthly payments. (Who will control the money? The failed city governments and who says this is right to steal personal property in the first place? Taking something that doesn't belong to you is stealing, didn't your mothers teach you anything?)
Steven Gluckstern, chairman of the newly formed San Francisco-based Mortgage Resolution Partners, says his main concern is to help the economy, which is being held back by the mortgage crisis. (This will not help the economy and may even keep business people out of their cities.)
"This is not a bunch of Wall Street guys sitting around saying, 'How do we make money?'" he said. "This was a bunch of Wall Street guys sitting around saying, 'How do you solve this problem?'"
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.
Under eminent domain, the city or county would be required to pay those investors "fair value" for the seized mortgages. So Mortgage Resolution Partners would find private investors to fund that.
(That's good rob Peter to give to Paul. Sounds fair to me, how about you? What next pay check swaps. I can see it now. Hey IRS I am not making enough money but my neighbor has too much can we swap paychecks for a while so I can have what he has?)
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. (Enough! people have to grow up and accept the responsibility for the decisions that they make, including city governments. When you can't pay your bills you stop spending.) 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.
The company says that overall, all parties will be happy.
(Why wouldn't they, the stand to make booko dollars?) The homeowners, for obvious reasons. The cities, for stemming economic blight without using taxpayer bailouts.
(Stealing is better) And even the investors whose mortgage investments are seized. Mortgage Resolution Partners figures they should be glad to unload a risky asset.
(What if they don't want to sell? Will the government take the properties anyhow?)
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.
The company says that focusing on borrowers who are current on their loans is a smart way to do business, rewarding those who are already working hard to keep their homes. But, Rayl pointed out, those are also the exact mortgages that investors are eager to keep.
Already, the outcry was heard at the first meeting of the joint powers authority on Friday, even as chairman and San Bernardino County chief executive Greg Devereaux said the entity — which was inspired by Mortgage Resolution Partners' proposal — has not yet decided on a specific course of action.
Timothy Cameron, managing director of the Securities Industry and Financial Markets Association's asset managers group, told the authority that residents of the region would find it harder to get loans and investors — including pensioners — would suffer losses. He also said such a move would invite costly litigation.
"The use of eminent domain will do more harm than good," he said. "We need mortgage investors and lenders to come back to these fragile markets — but this plan will force both groups to avoid them."
But Robert Hockett, a Cornell University law professor who serves as an unpaid adviser to Mortgage Resolution Partners, was unsympathetic. He likes how the plan forces the hand of uncooperative investors, who have sometimes stifled plans to reduce mortgage payments.
(This is how business is done in China.The government takes what it wants and too bad for the true owners. I thought we lived in America, the home of the the free and the brave.)
"It's kind of like saying a loan shark objects to anti-predatory lending laws," Hockett said.
Theodore Woodard, a 62-year-old retired air conditioner installer, said he'd welcome the help on his five-bedroom home in Fontana. So far, he and his wife have kept up with monthly $3,100 payments, plus taxes and insurance, but it hasn't been easy, and they have watched several neighbors in the well-manicured neighborhood some 50 miles east of Los Angeles lose their homes to foreclosure.
(This is a crock. He had to know what his payment was going to be when he signed on the dotted line. Accept the responsibility for your actions. Many people are suffering. I am and you probably are too but I am not going to cry about my mess I am dealing with it. I am under employed and have been for several years. Maybe the government can steal someone else's job and give it to me. How would you like to lose roughly 75% of your income? Well I did and guess what I am getting through it. Uncomfortable yes, doable yes, being done without a bail out, you betcha!)
"We've been making our monthly payments, barely making them, but we just pay them and try to survive off what's left," said Woodard, who estimates his house has lost a third of its value since 2004.
In San Bernardino County, the problem is clear. The median home price has plunged to $150,000 from $370,000 in five years. The combined San Bernardino-Riverside metro area has the highest foreclosure rate of any large metro area in the country, at four times the national average, according to RealtyTrac, which tracks foreclosure properties.
Devereaux, who has seen other plans to fix the housing crisis peter out, is cautious.
"I don't know whether this will work or not," he said. "But we do think we have a responsibility to explore it."
(No you don't! The more you meddle, the more things get worse. Manage the cities and leave the private sector alone.)
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Rexrode reported from New York. AP Business Writer Daniel Wagner contributed to this report from Washington, D.C
Leon
No images just the truth straight up.
P.S. Brush your teeth, wear clean underwear, and avoid angry opossums and bad government policies.
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