Cities Considering Using Eminent Domain To Seize Mortgages And Lower Payments For Residents

Who's up for living in a Banana Republic?

The municipalities, about 45 minutes east of Los Angeles, would acquire underwater mortgages from investors and cut the loan principal to match the current property value. Then, they would resell the reduced mortgages to new investors. …

For a home with an existing $300,000 mortgage that now has a market value of $150,000, Mortgage Resolution Partners might argue the loan is worth only $120,000. If a judge agreed, the program’s private financiers would fund the city’s seizure of the loan, paying the current loan investors that reduced amount. Then, they could offer to help the homeowner refinance into a new $145,000 30-year mortgage backed by the Federal Housing Administration, which has a program allowing borrowers to have as little as 2.25% in equity. That would leave $25,000 in profit, minus the origination costs, to be divided between the city, Mortgage Resolution Partners and its investors.

Ed at Hot Air runs down the market distorting effects this craziness would have but consider this bit from the story.

But unlike the beneficiaries of most recent mortgage-modification efforts, who must show hardship, these borrowers would have to be current on their payments to participate. And the program initially would focus only on mortgage-backed securities that aren't federally guaranteed—about 10% of all outstanding U.S. mortgages.

These aren't even houses in or near foreclosure (not that it should matter in the least). This is just the government enriching itself, their business partners and a select few residents by taking away the income generating property of law abiding lenders and transferring those profits to a second private entity that just happens to be in bed with the government.

This is insanity and jackbooted fascism. Actually it's California and it can't fall into the ocean fast enough.

posted by DrewM. at 02:11 PM

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