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Guest Post: The Eminent Domain Mortgage Heist
Submitted by John Aziz of Azizonomics
The Eminent Domain Mortgage Heist
Something very interesting is happening.
There’s been so much corruption on Wall Street in recent years, and the federal government has appeared to be so deeply complicit in many of the problems, that many people have experienced something very like despair over the question of what to do about it all.
But there’s something brewing that looks like it might be a blueprint to effectively take on the financial services industry: a plan to allow local governments to take on the problem of neighborhoods blighted by toxic home loans and foreclosures through the use of eminent domain. I can’t speak for how well the program will work, but it’s certaily been effective in scaring the hell out of Wall Street.
Under the proposal, towns would essentially be seizing and condemning the man-made mess resulting from the housing bubble.
I approach the issue and constitutionality of eminent domain — government seizing of property in exchange for whatever the government defines as just compensation — very suspiciously. While I am altogether hostile to the idea of government being able to declare that what is yours is not yours, it has recently become a device for government to transfer private property from one private owner to another.
In Kelo v. City of New London (2005), the use of eminent domain to transfer land from one private owner to another private owner to further economic development was deemed to be constitutional. In a 5–4 decision, the Court held that the general benefits a community enjoyed from economic growth qualified private redevelopment plans as a permissible public use under the Takings Clause of the Fifth Amendment.
While seizing land with compensation to build a highway for public use is one thing, seizing property for the private profit of others is quite another. Yet many like Taibbi are heralding the potential of seizing underwater mortgages. I will consider any initiative to reduce total debt and deleveraging costs, as I believe that excessive total debt is the largest cause of today’s depression. But given the history, I have every right to be cautious and even suspicious.
Taibbi:
The plan is being put forward by a company called Mortgage Resolution Partners, run by a venture capitalist named Steven Gluckstern.
Here’s how it works: Mortgage Resolution Partners helps raise the capital a town or a county would need to essentially “buy” seized home loans from the banks and the bondholders (remember, to use eminent domain to seize property, governments must give the owners “reasonable compensation,” often interpreted as fair current market value).
Once the town or county seizes the loan, it would then be owned by a legal entity set up by the local government – San Bernardino, for instance, has set up a JPA, or Joint Powers Authority, to manage the loans.
At that point, the JPA [i.e. the taxpayer!] is simply the new owner of the loan. It would then approach the homeowner with a choice. If, for some crazy reason, the homeowner likes the current situation, he can simply keep making his same inflated payments to the JPA. Not that this is likely, but the idea here is that nobody would force homeowners to do anything.
On the other hand, the town can also offer to help the homeowner find new financing. In conjunction with companies like MRP (and the copycat firms like it that would inevitably spring up), the counties and towns would arrange for private lenders to enter the picture, and help homeowners essentially buy back his own house, only at a current market price. Just like that, the homeowner is no longer underwater and threatened with foreclosure.
First — why municipalities? Why not states? The answer is that while all states other than Vermont have some form of balanced budget amendment, and cannot so easily take on debt, municipalities can freely take on debt. How much? Well, it’s almost certain to be open to legal challenges by current mortgage-holders, and courts may end up forcing municipalities to pay far more than municipalities initially stipulate. But at whatever values the mortgages are seized at, there is no doubt that the taxpayer will end up holding a lot of new debt.
The biggest problem though, is surely the danger of corruption. How many municipalities will end up using these opaque procedures to enrich well-connected insiders? How many will buy junk at inflated prices, or seize and sell to a well-connected insider at far below value? Who polices such transactions? Where is the transparency? How do we make sure that this is not just an excuse for bad lenders to offload junk to the taxpayer at inflated prices and cream a profit when they were set to reap a loss?
Matt Taibbi admits:
MRP absolutely has a profit motive in the plan, and much is likely to be made of that in the press as this story develops. But I doubt this ends up being entirely about money.
“What happened is, a bunch of us got together and asked ourselves what a fix of the housing/foreclosure problem would look like,” Gluckstern. “Then we asked, is there a way to fix it and make money, too. I mean, we’re businessmen. Obviously, if there wasn’t a financial motive for anybody, it wouldn’t happen.”
And you can restructure all you like, but many underwater homeowners with a serious income shortfall will still not be able to pay their mortgages. Who carries the can? If the mortgage has been sold on then the loss will be on the new owner. In reality this is far more likely to be the taxpayer. Simply, the taxpayer may well end up carrying the can for a whole lot of bust mortgages.
What Taibbi — who usually has a very good sense of moral hazard — and MRP effectively seem to be considering is not only the continuation and expansion of Kelo, but also potentially the transfer of liability from bust irresponsible lenders to the taxpayer. While this is sure to enrich the bureaucracy and well-connected insiders — and admittedly, while it may help some underwater homeowners — it seems incredibly risky for the taxpayer.
While debt-forgiveness is one way out of the debt trap, we should be careful and recognise that many so-called debt-forgiveness schemes may instead be dressed-up scams and frauds that end up enriching special interests while putting the taxpayer deeper into a hole.
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"...many so-called debt-forgiveness schemes may instead be dressed-up scams and frauds that end up enriching special interests while putting the taxpayer deeper into a hole."
Couldn't you just replace the words"many so-called debt-forgiveness schemes" with most legislation and laws passed at nearly every level of government since the Fascists took over (either when Nixon ended the gold standard or Reagan came to office, pick your poison) decades ago? (And yes, I know it can be argued that this country was actually set up this way, and I agree with that concept.)
Anyway, this is a financial/political system built on a myth of endless growth, which relies on endless greed. It is naive to think that such a system will not operate with a basic core of corruption. When everything is a commodity everything has it's price, including honesty.
Unsustainable systems last only as long as the huge energy and resource inputs required to keep them afloat flowing in without interuption. One of those resources in a debt-based system is an endless flow of sheople willing to take on debt and so-called investors willing to loan. When that basic cycle stops the system falters as we are seeing now. The collapse became inevitable once the sheep could no longer borrow and spend for more trinkets and baubles on one end. I won't even mention the fractional reserve system and leveraged gambling by the big boys.
Face it, this whole system has been a fraud for quite some time and seeking to "fix" is an impossible task without rebuilding a new foundation. Until then this muddle through economy will continue and in doing so it will become even more corrupt, greedy and dishonest. Enjoy!
This form of eminent domain is targeted socialism. If it it is allowed to stand by courts and voters, it will expand vertically and horizontally. That is to say, broadening out by increasing the related private businesses that can be "Keloed", and vertically by jurisdication. Pretty soon, the sewer district could attempt to Kelo the plumbing repair business. What stops a county from Keloing all the gasoline stations?
Nothing. Look at Agentina.
Ultimate corruptness until the whole thing clollaspes. When all the Ponzi maxes out it's when we get the clearing of all the trash.
Just more of obama's CRONY CAPITALISM
Investors With Ties To Buffett, Soros, Obama Plan Mortgage Eminent Domain Grab
http://www.futureofcapitalism.com/2012/06/investors-with-ties-to-buffett-soros-obama-plan
This country was built on emminent domain. Just ask an Indian.
The gaming by corrupt municipalities is the first thing I thought of when I heard of this plan. Having lived in Chicago, maybe I'm a little jaded.
stop being pussies. just stop paying your mortgage this will induce a foreclosure lawsuit from your servicer. they'll turn over reams of paper reflecting their fraud in discovery. attach it to motions.
i did this, and made servicer go bye-bye on a motion to dismiss
this is either the fight club. or it isn't
I just happened to think of someone I met at a resort in 2008. He told me that someday, we were going to have a civil war in this country. Since then, I've been trying to envision how that would take place. Would the people rise up against the government? Would the 99% rise up against the 1%? Would there be mad max in the streets, the destitute against anyone who had anything? Now, I'm beginning to think that TPTB, financial and political are in the process of deviding up the people for a war between themselves. On one side, those who depend on private enterprise, and on the other, those who depend on the government. Is the FED, who controls the money supply an agent of the government or a shill, actually suppoting the financial powers to be? Can they starve the government of financial resourses, intiiating a coup by the government over private enterprise, the financial powers to be, in order to maintain control over their people? Will it all boil down to which side the miliatary chooses? This is starting to get interesting, sad as it is.
getting old sucks, and so does being uniformed. look it up. the FED isn't anything to do with the government and is a private corporation owned by the banks, the larger the bank, the larger it's share in the FED.
I've had this discussion on another forum. This is obviously blatant misuse of ED, but it seems to me it would work out for the homeowner in the end, no? Thats making a huge assumption that it would all go as planned, as pie in the sky as it is. The bank loses the loan, but writes it off. The homeowner gets to keep said home at a lower payment and subsequent valuation-oops! I see that the bank (or Fannie or whoever that may be) will have a huge write off loss, but most importantly lose conceivably one of the only true assets they own with any tangible value. I guess this is what prevents it from happening.
So now my muni could be my mortgage holder? Oh boy!
Yes, sire, right away sire, your jumble servant is always ready to obey...
Although, maybe that could be a good thing. Maybe my local shire reeve is a better protector of my rights if he is theoretically a stakeholder in my property than some far away 'lord'.
???
This article is rhetorical. Such "nationalizations" always benefit special interests. If there are no special interests, they let it burn.
the answer is....... Let the housing market find it real bottom. Yes people will have to walk away from mortgages, yes people will lose money..but at the end of the day, when the smoke clears, we will have homes priced at affordable levels where people can get back and buy a home again at a realistic price.
Stop interfering,
see these articles; the CAFR dam may be about to break. The CA parks dept just got caught saying they would have to close 70 parks because of budget woes, but lo and behold, they actually have a surplus..just like most counties, cities, states do when examinging their CAFR's. Walter Burien at CAFR1.com wrote to Carl Herman of the examiner who posted the original article, First, the Sacremento Bee covered it, and now the LA times has covered. it. Heads have already rolled.
http://cafr1.com/Herman.html
http://www.examiner.com/article/la-times-reports-ca-parks-54-million-cafr-surplus-director-resigns-2-fired
http://www.latimes.com/news/local/la-me-state-parks-20120721,0,3462998.story
Just the latest scam to squeeze money out to the banks, and oh, BTW it also expands the Government. No thanks. The Government and Banks have caused this problem, the only real solution is the free market.
Every $1 is worth 1/350,000,000 to me. WTF do I care sarc off
This is a real interesting question.
If they could do this with Mortgage Debt, could they do it for their Citizens Student Debt, or Credit Card Debt?
Could the Municipalities Eminent Domain their own Debt owed to the Banks to lower interest or in essence refinance it for 70% less?
How about Municipal Bonds? Could they declare Eminent Domain on them?
All of the above could be considered for the greater good of the County and the population.
> How about Municipal Bonds? Could they declare Eminent Domain on them?
Don't know, but it seems only fair they should be adding DVA to their income.
By the way, to make the eminent domain scheme work, all the govt has to do is hold the auction before it seizes the loan. Fair value determined.
How many municipalities will end up using these opaque procedures to enrich well-connected insiders?
Oh, that would never happen...
John, a couple points of contention:
First, the government doesn't decide fair market value on a taking... when the government uses eminent domain powers, it's constitutionally mandated to pay the fair market value of the taking. The government makes an OFFER of what it considers to be fair market value, but the landowner is not obligated to take it. If one is so inclined, he or she can contest the valuation in the court case that is initiated by the state to take the land. Let's just say that a jury of your peers is much more likely to give a fair valuation than the government... it happens every day, all day... so please do not pretend that the government simply decides what the value of your land is and then takes it from you... that's not how it works. I encourage you to go watch from the trenches and see for yourself.
Second, I'm at a loss for why local governments need to set up munincipally owned companies to handle purchase of the liens/notes. The entire scheme cannot be anything other than a scam. Cities and local governments have inherent police powers as well as powers to ensure the safety and health of their local populace. It is these fundamental powers that cities use to condemn properties and eventually destroy them if the owner(s) fail to comply with the city's demands. If your old house is a public nuisance and poses a danger to the public, then you will get your house destroyed and receive nothing for it... I'm at a loss for why this process isn't sufficient to handle the deterioration of vacant housing... the city does not need to venture into any other arrangement to achieve its stated purpose. As a result, this proposal can be nothing more than the socialization of losses... albeit with a chatty salesman middleman making a nice cut for matching the keymaster and the gatekeeper.
Further, I'm at a loss for how municipalities think that they know who is the real party (owner) of the liens/properties... how do you buy things on the open market that have no known owner (only a purported owner)? This entire process is apparently how MERS is going to get cleaned up... banks will get taken to the cleaners if they try to foreclose, so they'll just sell to local governments and wash their hands of the mess... of course, the problem is that cities are buying shit assets and are always eager to pay too much.
"Two wrongs to make it right."
Yeah, that will sure cure all our ills.
Can we eminent domain the White House and US capitol? They owe alot of money and refuse to pay their depts. Maybe we could turn them into public brothels - at least they would provide a positive income stream.
The US is turning into a banana republic. Take away the right to private property and you take away one of the key factors that drive economic growth. Now mortgage lenders will need to collect an "emminent domain risk premium" on every loan since their first mortgage can now has a call option built into it. If this type of theft becomes common place, the borrower will not only need to pay for Title Insurance, but also for Emminent Domain Insurance. It is unlikely that the will go after loans held by Bank of America and other TBTF banks. They will go after other investors. Future funding from these investors will dry up.
I approach the issue and constitutionality of eminent domain — government seizing of property in exchange for whatever the government defines as just compensation — very suspiciously. While I am altogether hostile to the idea of government being able to declare that what is yours is not yours, it has recently become a device for government to transfer private property from one private owner to another.
I mentioned the other day my county has refused to mark to market home values for tax appraisal purposes causing existing owners to pay a disproportionately high tax to new owners as new property is marked at price paid. This is an outrage, however the real problem is the county is taking property where homeowners are tax liened out of possession of the property and the property is then offered to government employees at fifty cents on the dollar. http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/reo/goodn/gnndabot
Have you ever actually looked at the shit hole, crack whore infested "communities" that properties that qualify under this program are situated in? I wouldn't give you 10 cents on the dollar. Not without the moat and a dozen fixed position M60's included in the purchase price (along with 500,000 rounds of ammo and crocodiles for the moat).
Another garbage piece by an author with an axe to grind. MRP is only interested in mortgages that are current, so those mortgages will certainly be current if you effectively haircut that mortgage. It is silly to bring up taxpayers holding the bag. This is merely a simple case of a new brand of Wall Street type criminals using the power of the muni government to stea assets at low-ball prices.
I just saw a commercial, sponsored by the Home Realtors Association, that says home ownerships leads to better grades for school age children and happiness in general. Yet another push to get people (parents) to buy something they can't afford to supposedly keep their child happy.
EPJ reports,
http://www.economicpolicyjournal.com/2012/07/matt-taibbi-on-new-developi...
the government takes complete control of housing. sounds like a little agenda 21 soviet style urban renewal. the banks are pissed? bet the rothschilds are smiling.
Elect "Let the market clear" Romney. Don't you believe him?
This seems self-sabotaging by the cities... they seize all the properties, property values drop by 1/2 and municipal revenues plummet, since property taxation is a large source of revenue in California and not only would the seized properties drop precipitously in value, but all their neighbors' appraisals, since property values are based upon "comps". Every property owner would immediately apply for property tax abatement, as is allowed in Calif. Then it spreads like cancer across municipal boundaries to other municipalities. How is this scenario good for anyone except Buffett & his friends at the Mortgage resolution corp?
I'm not an expert, just wondering if anyone can prove or disprove this scenario.
California Proposition 99? Anybody have a legal opinion?
there is only one type of debt forgiveness. it is called bankruptcy with no deficiency judgements and no littany of exceptions to discharge, of which, back taxes and other types of debts are of course non-dischargeable.
NOTHING should be non-dischargeable for someone who owns nothing and has no income. debt slavery is a huge problem. always was, still is.
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