The Lehmann Letter (SM)
Many criticized the 2008 bailout of American banks for failing to also bail out mortgage debtors. Now banks that received public assistance have foreclosed on mortgages owed by those debtors. Large numbers of these homes remain vacant, exacerbating the housing slump.
Other borrowers are under water – owing more on their homes than they are worth – because home values have fallen. They can’t obtain refinancing because the new mortgage would exceed their home’s value. Some borrowers have walked away from their homes and debts, assuming that their homes’ values will never exceed what they owe on them.
As a result many neighborhoods are blighted with vacant homes that depress the value of the housing stock. This contributes to the balance-sheet slump bedeviling American households.
Despite suggestions that federal legislation enable banks and borrowers to write down the value of distressed homes, no national program has emerged.
Now some officials in Fontana, CA are exploring a radical way out.
Read all about it in the July 15 New York Times:
“California County Weighs Drastic Plan to Aid Homeowners”
Here are some key excerpts from the article.
“Desperate for a way out of a housing collapse that has crippled the region, officials in San Bernardino County, where Fontana is one of the largest cities, are exploring a drastic option — using eminent domain to buy up mortgages for homes that are underwater.
“Then, the idea goes, the county could cut the mortgages to the current value of the homes and resell the mortgages to a private investment firm, which would allow homeowners to lower their monthly payments and hang onto their property….
“The idea to use eminent domain to seize mortgages first came from a group of venture capitalists in San Francisco, Mortgage Resolution Partners, who would collect a fee for each of the restructured loans. The firm is also trying to persuade officials in Nevada and Florida to try the idea….
““We have what we regard as a systemic problem, but it’s felt most urgently at the local level,” said Steven M. Gluckstern, the chairman of Mortgage Resolution Partners. “We have all these people who want to be able to stay in their homes and keep that, but it is getting to be impossible. Until you fix this problem, you can’t fix any other problems.”
“As for the group’s eminent domain idea, “if it works, every mayor of every city is going to want to do this,” Mr. Gluckstern said….
Under the current proposal, only homeowners who are current on their payments would be eligible for the program, a policy some have criticized because it does little to help the neediest people.”
Drastic problems elicit drastic solutions.
(Summer season: The Lehmann Letter will be in summer-vacation mode during July and August.)
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© 2012 Michael B. Lehmann