Saturday, September 1, 2012

Underwater Mortgages: The Most Hair Brained Statist Initiative I've Yet to Hear

It's no secret that bondholders and banksters are sitting on a ton of underwater mortgages, mortgages where the value of the property is far less than the mortgage. In a sane world, the lenders would take their hits on defaulted mortgages and put the properties on the open market to achieve true market equilibrium pricing because, well, that's how free markets are supposed to function. But in America, such things never happen because sitting on a busted balloon and waiting for it to magically inflate itself is a national obsession even if it does defy the laws of physics and economics.

The real estate bubble was substantially driven by the government and the banksters who devised mortgage lending programs that went like this: No money, no problem, no job, no problem, bad credit, no problem. Of course the realtors and home builders massively filled up campaign coffers to get such insane lending practices implemented. Offered a deal they couldn't refuse, the American people took the bait and loaded up with McMansions and real estate that they couldn't afford even in a decent economy. Well, judgment day always arrives along the lines of the laws of gravity.

Although there really are no viable solutions to the real estate debacle other than the free market solution, that hasn't stopped energetic collectivists and evil rent seeking business interests from joining hands in a scheme that can only be described as the mother of all collectivist confiscatory insanity.

A Huffington Post piece documents evidence of the scheme, although the scheme is not exactly new and has been kicked around for a while.

San Bernardino Eminent Domain Fight Closely Watched By Other Struggling Communities
Gregory Devereaux is the chief executive of San Bernardino County and its 2 million residents. At his urging, local authorities are considering a proposal that would allow local governments to exercise their power to seize private property without landowners' consent in a dramatic -- some say radical -- new way.

Governments usually use this power, known as eminent domain, to acquire private land for public purposes, such as roads or utility lines. But this plan, proposed by a San Francisco-based venture fund Mortgage Resolution Partners, calls for government authorities to seize the mortgages of underwater borrowers, paying the investors that own them a fraction of what they are owed, using money borrowed from the fund. Homeowners could then refinance with a federal loan at a much lower rate, based on what their home is actually worth instead of what they owe.

Supporters say the plan would send a supercharged bolt of energy into the housing market, spurring economic development and preventing even more of the foreclosures that have wrecked many communities.
Let's take this slowly.

A group of private investors want to use eminent domain to seize mortgages for pennies on the dollar. This automatically stiffs and plunders mortgage bondholders and possibly even the taxpayers where government agencies are holders the mortgages (Fannie Mae, FHA, VA etc.).

The investors plan to do this with money from a 'fund'. Who is funding the fund? Nobody knows.  Of course, it would be my guess that some Wall Street bankster like Goldman Sachs is behind hatching the scheme.  Why not?  They have access to the Fed's window and all the fiat money at close to a zero rate of interest it could possibly want.  Yes, it's a license to steal but that's a different issue involving a grand theft that has been going on since the Fed was created in 1913.

In any event, the plan of the private investors is to then use a government loan program to refinance the looted property (property stolen from bondholders) for the homeowners who couldn't afford to pay their mortgages in the first place.  The argument put forth by the advocates of the scheme, private investors and government bureaucrats, is that if these underwater loans are refinanced at true market value then homeowners wouldn't lose their homes and could afford to pay their mortgages.

There's a huge problem with the scheme:  it's predicated solely on the right of the government to steal from somebody else to give underwater homeowners a bailout (stolen loot) as well as a new government back loan program that puts taxpayers on the hook.  Simply put, it's outright expropriation and redistribution of wealth.

The entire scheme is being sold to government officials as an economic boom as well as a form of a taxpayer bailout for home owners. The Huffington Post article continues:
The proposal also comes amidst broad frustration with the Obama administration, which has so far refused to offer a broad-based plan to bail out underwater borrowers, even as taxpayers have spent hundreds of billions of dollars to prop up banks.

"We've seen a bailout of the banking industry, but no bailout for homeowners," said Arie Giddens, a San Bernardino resident whose home is worth less than half the $300,000 she paid for it in 2005....
This scheme is such an egregious violation of contract law and property rights that if it were to be implemented anywhere, property rights would not only cease and desist but be subject to government seizure at any time and for any reason. On a more frightful note, other communities are also considering implementing the program:
About a dozen communities have voiced some level of interest in the eminent domain plan, including Chicago, Sacramento, New York's Suffolk County and most recently -- according to sources familiar with the discussions -- Detroit.About a dozen communities have voiced some level of interest in the eminent domain plan, including Chicago, Sacramento, New York's Suffolk County and most recently -- according to sources familiar with the discussions -- Detroit.
The Supreme Court Kelo decision upheld the right to use eminent domain for private purposes and private profits which, of course, dramatically conflicts with the historic intention of the concept of eminent domain which used to be the right of the government to seize private property for a public use.  One of the silver linings of the Kelo decision is that the Supreme Court, in a rare act of upholding state rights, actually invoked the 10th amendment and state rights on the issue by also ruling that the states could do whatever they wanted, including restricting eminent domain to its historical intent.  Few states even bothered to use the SCOTUS ruling to strengthen property rights and those that did ended up passing weak and watered down property protections.

Under the law, eminent domain is considered a legal 'taking'.  Just about every statute on eminent includes the requirement that the victim of the taking be justly compensated on the basis of fair market value.

Not only does this mortgage eminent domain scam exclude any concept of just compensation for the victim of the taking but it also give the government and its private investor 'partners in crime' the absolute right to force the victims to accept whatever they decide the expropriators will pay which of course won't be anywhere near the market value of even an underwater mortgage.

Distilled to its absolute and raw essence, this eminent domain of mortgages scheme is outright theft, an unjust taking, a massive redistribution of wealth and if implemented will forever and permanently weaken what property rights still exist in America.  

1 comment:

  1. Underwater Mortgage situation is an unexpected shock for a property owner. This may happen as an aftermath due to economic downturn or change in some demographics.

    loan modification program california


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