News
California county holds forum on the housing crisis
Officials in San Bernardino County, Calif., got an earful August 16 during a public hearing on mortgage relief plans, including a controversial proposal to use eminent domain to condemn underwater mortgages. Representatives from the mortgage finance industry warned of serious consequences — including legal action — if the proposal were implemented, while local homeowners pleaded for relief, according to The Huffington Post.
Using eminent domain would “reduce access to credit for borrowers,” and “result in lengthy and costly litigation,” said Timothy Cameron, a managing director of the Securities Industry and Financial Markets Association (SIFMA).
But homeowners urged officials to take action. “We’ve seen a bailout of the banking industry, but no bailout for homeowners,” said local resident Arie Giddens. Her home in the city of San Bernardino, purchased for $300,000 in 2005, is worth less than half that now, according to Huff Post.
County officials called the hearing to get ideas about how to solve the housing crisis in the working-class region east of Los Angeles. More than half of county homeowners are underwater, meaning they owe more on their mortgages than their homes are worth, and the foreclosure rate in the county is more than three times the national average.
County officials say they haven’t settled on any plan and are open to all ideas. But the proposal that has stirred the most debate is the one put forth by a private venture fund, San Francisco-based Mortgage Resolution Partners.
Under the plan, local governments would use their power of eminent domain to seize underwater mortgages. Mortgage Resolution Partners would front money from private investors for governments to purchase the loans at current market value, in exchange for a fixed fee of $4,500 for each transaction. Homeowners could then refinance at lower rates.
Mortgage investors say the plan is a misuse of eminent domain, but county officials say it’s appropriate because the housing bust is a public blight. More than a dozen other local governments, including those in Suffolk County, N.Y., Berkeley, Calif., and Chicago, are considering similar proposals.
Lete’s see, California is
Lete’s see, California is already in debt beyond all reasonable expectations, with several agencies facing bankruptcy. So now they should take on more debt? That should certainly help homeowners and taxpayers, particularly when the whole mess crashes down around their ears. How about letting the market sort it out before destroying all financial credibility of government?
The press seems to have
The press seems to have latched on to the “emminent domain” issue when in fact, the RFP that is going out to solicit solutions makes no mention of it. They are looking for solutions in whatever form and to suggest that emminent domain is the purpose and focus of the effort is irresponsible reporting.
Eminent Domain would put the
Eminent Domain would put the property in the courts forever. The best way is to create a (Federal) Agency to take a second (preferred equity interest in the property and buy down the first mortgage to a level that the ratios provided by GNMA were met in terms of Owner Income and Loan to Value.
By so doing the Mortgagee (the bank holding the mortgage) would have a security that could be sold to GNMA/FNMA/FHA/FreddieMac and securitized by those agencies.
The Mortgagor would be able to stay in his house and spend no more than 38% of his real income on the new First Mortgage.
The new Agency would have a senior position in the equity on the property, zero value immediately. First Mortgage and Preferred Equity would be in synch: 5 year adjustable rate, with dividend on the Agency’s holding of Preferred (think interest) accumulating for the five year term We use this form to avoid unfavorable ratios. on the First Mortgage.
We expect that at five years, when both are up for renegotiation, the property market would have at least partially turned around and the required ratios will permit a reduction of the Preferred portion and an increase in the first mortgage.
If owner sells, the Preferred portion goes with the property and the distribution at closing goes first to pay off the first mortgage and second to buy down or pay off the Preferred portion, with the owner getting the residual.
It is a win, win. Bank dumps now fully secured mortgage. Home owner has cash flow (70% of his income) to use more wisely.
pete speer