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.)
© 2012
Michael B. Lehmann