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Taibbi writes: "There's something brewing that looks like it might be a blueprint to effectively take on Wall Street: 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."

Matt Taibbi at Skylight Studio in New York, 10/27/10. (photo: Neilson Barnard/Getty Images)
Matt Taibbi at Skylight Studio in New York, 10/27/10. (photo: Neilson Barnard/Getty Images)



A Serious Challenge to Wall Street

By Matt Taibbi, Rolling Stone

21 July 12

 

omething 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. Cooked up by a small group of businessmen and ex-venture capitalists, the audacious idea falls under the category of "That’s so crazy, it just might work!" One of the plan’s originators described it to me as a "four-bank pool shot."

Here’s how the New York Times described it in an article from earlier this week entitled, "California County Weighs Drastic Plan to Aid Homeowners":

Desperate for a way out of a housing collapse that has crippled the region, officials in San Bernardino County … 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.

I’ve been following this story for months now – I was tipped off that this was coming earlier this past spring – and in the time since I’ve become more convinced the idea might actually work, thanks mainly to the extremely lucky accident that the plan doesn’t require the permission of anyone up in the political Olympus.

Cities and towns won’t need to ask for an act of a bank-subsidized congress to do this, and they won’t need a federal judge to sign off on any settlement. They can just do it. In the Death Star of America’s financial oligarchy, the ability of local governments to use eminent domain to seize toxic debt might be the one structural flaw big enough for the rebel alliance to exploit.

The plan only makes sense in the context of America’s overall economic paralysis. Right now the economy is stuck in a standstill, largely because of the housing bubble. Five or six or ten years ago, when Wall Street was cranking out trillions of dollars of cheap home loans so that they could later be chopped up, pooled, and sold to unsuspecting investors in the form of high-grade securitized bonds, millions of ordinary people jumped on the housing comet, buying big houses for big money.

The problem is, if you bought a house for $300,000 then, it might be worth $200,000 now. When you’re $100,000 in debt, you’re not rushing out to buy washing machines, new cars, new DVD players. As Paul Krugman put it in his column today:

There’s no mystery about the reasons the economic recovery has been so weak. Housing is still depressed in the aftermath of a huge bubble, and consumer demand is being held back by the high levels of household debt that are the legacy of that bubble.

Then there’s the other problem. Even if you manage to keep making your payments on your house, your neighbor might not. Whoever used to live next door has left after a foreclosure: there are squatters building a meth lab in the basement now. Two more houses are being boarded up down the street. So now the value of your house is getting lower and lower every day. No matter how fast you make your payments, your debt situation is still going to be moving in the wrong direction.

Instead of letting everyone be slowly ground into dust under the weight of all of that debt, the idea behind the use of eminent domain is to pull the Band-Aid off all at once.

The plan is being put forward by a company called Mortgage Resolution Partners, run by a venture capitalist named Steven Gluckstern. 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.”

Here’s how it works: MRP 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 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.

In order to make MRP work, Gluckstern and his partners needed to find local officials with enough stones to try the audacious plan. With so many regions in such desperate straits thanks to the housing mess, that turned out to be not as hard as perhaps might have been expected.

First in line was San Bernardino County in California, not coincidentally located at ground zero of a subprime bubble blown to gigantic proportions by Southern Californian mortgage giants like Countrywide and Long Beach. San Bernardino is more or less a poster child for the mortgage crisis; more than half of its homeowners are underwater on their homes, unemployment is past 12%, and the city of San Bernardino recently had to file for bankruptcy.

It’s not surprising, then, that local officials like Acquanetta Warren, mayor of the city of Fontana, were receptive to the eminent-domain plan.

“Sooner or later,” Warren told the New York Times, “all these people who are upside down on their homes are just going to leave the keys out on the door and say forget it. This was supposed to be the promised land, and now we have people waiting in some kind of hellish purgatory.”

San Bernardino County officials, along with two of its bigger cities (Fontana and Ontario), have set up the legal mechanisms needed to condemn and seize home loans, but the details of the plan haven’t been completely worked out yet. Still, officials say about 20,000 homeowners in San Bernardino would be eligible for the program; how many will get to use it is unknown.

In the meantime, other counties in other parts of the country are considering the plan. MRP has been courting local officials in Nevada, Florida, and in parts of the Northeast. In New York, officials in Suffolk County on Long Island, where 10% of homes are underwater, are seriously considering the plan.

The role of MRP and the presence of businessmen like Gluckstern in this whole gambit is going to tempt some reporters to pitch this story as a purely financial story, and certainly it does have interest as a business headline.

But MRP’s role aside, this is also a compelling political story with potentially revolutionary consequences. If this gambit actually goes forward, it will inevitably force a powerful response both from Wall Street and from its allies in federal government, setting up a cage-match showdown between lower Manhattan and, well, everywhere else in America. In fact, the first salvoes in that battle have already been fired.

For instance, the Wall Street trade association, SIFMA, this past week issued a denunciation of the eminent domain plan that includes a promise of a legal challenge. “We believe the MRP proposal is unlikely to survive a judicial challenge,” one of SIFMA’s lawyers wrote. Other trade groups are lining up to describe the tactic as illegal or "unconstitutional."

More insidiously, however, SIFMA pledged that its members will not allow future home loans originated in counties that use the eminent domain tactic to participate in something called the To-Be-Announced (TBA) markets for mortgage-backed securities. Explaining this would require a sharp detour into a muck of inside-baseball mortgage terminology, but the long and the short of it is that SIFMA is promising to make it difficult for any community that tries this tactic to obtain private mortgage financing in the future.

Essentially, SIFMA is promising a kind of collusive financial lockout of uncooperative communities. The threat would appear to be a high-handed form of redlining that raises serious antitrust questions, but in a way, that kind of response is to be expected.

Ultimately, the MRP tactic will be a fascinating test case to see exactly how much local self-determination will be allowed by the centralized financial oligarchy and its allies in the federal government.

If through boycotts, collusion, federal pressure and other forms of encirclement, local governments can be stripped of their right to condemn blighted property, we’ll know that the guts have been cut out of the very idea of regional self-rule. It will be fascinating to watch. At the very least, this story has the potential to be the first true open, pitched battle between Wall Street and the homeowners and communities who have been the primary victims of financial corruption.

Tune in for more on this front soon.

Editor's note: Readers interested in learning more about this would do well to read North Carolina congressman Brad Miller's piece on this in American Banker. Miller is not necessarily a proponent of the exact mechanism proposed by MRP, but he is intrigued by the general idea of using eminent domain to address the blighted-loan problem, and seems particularly interested in the strategic possibilities of addressing the problem at the local level. He writes:

The biggest banks have used their political power in Washington to defeat any effort that would effectively reduce foreclosures, such as allowing judicial modification of mortgages in bankruptcy, allowing a federal agency to use eminent domain to buy mortgages, or providing teeth for the chronically ineffective Home Affordable Modification Program, because those efforts would also require the immediate recognition of losses on mortgages.

But Wall Street's power in Washington may be as useless in defeating a proposal in San Bernardino County as strategic nuclear weapons are in fighting an insurgency. No wonder Wall Street is panicked.

Also, here's a piece Miller wrote a couple of years ago in The New Republic suggesting the use of eminent domain through the use of a public vehicle similar to FDR's Home Owners' Loan Corporation, or HOLC.

Again, there's going to be a lot of heated discussion about this, and it's sure to get ugly in the near future. This idea will be portrayed as radical and unrealistic, but in reality it's neither terribly radical nor even all that new. What it is, more than anything else, is uncomfortable. Anyway, more on this to come.

Editors' Note II: There've been some readers who are concerned with the question of MRP's profit margin, and who will end up having to pay for it if. I've heard these complaints from a number of quarters, including from government officials who actually support the eminent domain idea generally, but would prefer to see it done by a government-run program a la FDR's HOLC.

In an ideal world, I'd probably like to see this done via something like HOLC, but the problem is that our president is not FDR but Barack Obama, who's shown no willingness to go very far to fix this problem. The advantage to the MRP model, as I see it, is that it has a chance of happening. The important question to me is the more general issue of whether or not communities will be permitted to use eminent domain to condemn blighted home loans. The details of how exactly it will be executed to me are negotiable. But more than anything, I'm interested to see if it can happen.

Here's how rep. Miller put it:

Law professors, economists, community advocacy groups and politicians with no financial interests at stake have argued for just such an effort to address the foreclosure crisis.  A program by a government agency not motivated by the pursuit of profit would be greatly preferable, but this proposal by the for-profit mortgage company obviously serves a public purpose.

It's important for people to remember that the bondholders are not, necessarily, the bad guys in this story. The lenders like Countrywide who created the loans, the big banks who securitized and repackaged them, and (in some cases) the trustees of the loan pools who failed to properly maintain and service the loans, they all have culpability, but in many cases, they are not the ones who are going to take the loss. The loss will be taken by anyone who holds mortgage-backed securities, and in addition to the big banks that could also include unions, pension funds, hedge funds, and so on. So it's important that this be done as equitably as possible, if it's going to be done.

So if this ends up happening, I trust that a way will be found for people on all sides to find the right price. As it stands, the condemnation process will allow both sides an opportunity to make an argument about loan value before a judge. Remember also that it would cost bondholders money to foreclose upon any properties headed in that direction. So there has to be a sweet spot somewhere in terms of loan value that all sides would accept. If the MRP model doesn't get us there, we'll find that out, but I haven't seen anything yet that tells me it absolutely can't work under any circumstances.

Again, these are all details and all negotiable. What matters to me here are the broad strokes. This money, it's already lost. What is paralyzing the country is our failure to recognize that loss. This is an idea that allows us to dynamite those losses at the bottom of a mine, and start over.

The use of eminent domain is obviously an extreme reaction. But the moral argument for its use is clear here. Virtually every community in America was the victim of a broad fraud scheme perpetrated by banks, lenders, ratings agencies (and, yes, even the GSEs like Fannie and Freddie) to artificially inflate the real estate market. The people who bought houses at the peak of the market and are now underwater, they are victims of a crime, the crime being a conspiracy by banks, lenders and ratings agencies to misrepresent the value of home loans (particularly subprime loans) to the bondholders who bought them. The damage from that criminal scheme is not just ruining and bankrupting the homeowners who bought these artificially-inflated properties, it's also destroying neighborhoods and paralyzing the whole economy.

So it's absolutely appropriate for local governments to use the powers available to them to try to undo the damage, aid the victims, and help restore neighborhoods. How exactly they get there is negotiable, but I love the idea that they're trying.

 

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+4 # MidwestTom 2012-07-21 07:32
I am afraid that these proposed changes will hardly be felt by Wall Street. These are billion dollar things, when you need to deal in Trillions to get Wall Streets attention to the point that they rush several more Brinks trucks to Washington.
 
 
+52 # John Locke 2012-07-21 09:35
MidwestTom: It will hurt Wall Street! We are actually talking about trillions of dollars not billions! I am all for it! Great concept, and a real way to punish Wall Street they will have to take the losses and show their true insolvency!

Maybe this could also be a way to break them up?
 
 
+30 # Virginia 2012-07-21 11:17
Taking back the land, which has become the banks' new gold standard, will certainly affect the banks' balance sheets. I began suggesting this 3 years ago because it was apparent that the municipal trust funds had been raided and the coffers were empty. The Banksters were sneaky enough to structure settlements with the states and the unions that would allegedly pay off after the statute of limitations for fraud had passed - and that they could easily bankrupt before anyone would ever be repaid.

This is a good idea and the longer it takes for the municipalities to implement it - the closer the homeowners get to gathering up the arguments like fraudulent LIBOR induced rates on promissory notes that could void the contracts altogether and give them a free home for, among other things, their emotional distress.
 
 
+3 # speedracer 2012-07-22 11:47
What about Adjustable Rate Mortgages? That is what triggered the housing bubble and subsequently ruined many homeowners who greedily sought to beat the system by buying 'new' every four years and selling an over-appreciate d house before they had to take a hit from the rate adjustment. That form of lender abuse and the similar interest rate scam perpetrated by the Credit Card Industry should be grounds for a firing squad upon conviction. Talk about home-wreckers!
 
 
+3 # Sweet Pea 2012-07-22 14:12
You can bail people out, or flat out give them a house. However with everything we buy being made in other countries, how are people going to pay the bills once they get in the house?
 
 
-20 # wantrealdemocracy 2012-07-21 07:40
It is clear in this article that our federal government is corrupt and working to protect Wall St and let the rest of us rot in debt as the depression continues. "The federal government" includes President Obama and ALL MEMBERS OF CONGRESS. It is imperative that you do not vote for any of these contemptible people back to continue their evil deeds.
 
 
+50 # horos22 2012-07-21 08:41
Quoting wantrealdemocracy:
It is clear in this article that our federal government is corrupt and working to protect Wall St and let the rest of us rot in debt as the depression continues. "The federal government" includes President Obama and ALL MEMBERS OF CONGRESS. It is imperative that you do not vote for any of these contemptible people back to continue their evil deeds.


that's just plain inane. First thing, do you really think that romney is going to be anything but 10 times worse than obama on the issue? Second - the system is that, a complicated, intricate system, and to be fair you have to weigh each person's involvement in that system SEPARATELY. There is real scum there, granted, but to generalize like you have done here is just as contemptible as it would be to, say, blindly vote tea party (or democrat, or republican).I'm not a personal fan of what Obama has done finance-wise, but I understand it. Larry Summers wanted a pound of flesh from the finance industry, a head on a plate of a bank CEO and massive prosecutions. Tim Geithner did not - he was afraid that the banking system was too weak to stand such vengeance, and it would lead to a follow-on crisis. Obama listened to Geithner. Lord knows, I wish he didn't. We missed a grand opportunity to reign in wall street here, and to Obama's shame, we let things slide. Nonetheless, a Romney presidency would be a dismal affair for fairly obvious reasons.Why you wish for it is beyond me.
 
 
+4 # Virginia 2012-07-22 09:42
Obama's mother worked with Geithner's father in banking in Indonesia and Obama had an opportunity to let Geithner go in 2010 and failed to do so. It would be hard to believe that Tim knew something that Barry didn't. We have a serious problem here Sarg. We cannot continue to protect the corrupt banks.

There are some decent local bankers that were not participating in these schemes - but because our current gov't fails to jail the banksters and strip down the TBTF organizations - we are left with the infliction of crime, drug cartels, money laundering, fraud and a bankrupt country.

At this moment, I'm not sure of the leadership answer - but what keeps going through my mind is that Republicans will eat their own for breakfast... I just wish it wasn't Mitt - but maybe his Bain Capital "split up and sell" mentality is just what the banks need.

I can only hope Obama catches on before it's too late and begins to arrest and take the banks apart.
 
 
-54 # izzylee 2012-07-21 07:52
Look, I'm a liberal but I have to say, I do persuasion calls and I cannot tell you how many people I have spoken to that have pointed to the healthcare reform act and said, if we allow this what then? There will be no limit, then you will have government saying everyone should have houses and it will involve itself in the sale and purchase of homes... I always reply, oh, we would never do that then I read this. I'm sorry, it is just not the role of the government to take anyone's property- not even the banks. This is the line. I think that the solution really lies in allowing people who can no longer afford their mortgage to modify their loans, even unintentional landlords. If your going to force the bank on something do a government by down, buy the debt, get the payment down to where it is inline with market value and lower the interest rate for them down to 1-2%. Then we can all pay $2.00 extra a year or a half a percentage on sales tax to help each other out of this to pay. If they can't afford it because they are unemployed give them a tutorial on property management so that they can become landlords. We modified our mortgage and that freed us to move cross country with our children for a better job- now we're landlords and its pretty cool. We negotiated our consumer debt down to 0% and now we're not bleeding. There are solutions. Lets figure them out. The bottom line is, it's not the role of government to seize property-
 
 
+19 # Billbb 2012-07-21 14:46
Better to let the banks seize the property, then???
 
 
+24 # grindermonkey 2012-07-21 15:52
But it is the role of the government to seize property. Remember Christopher Columbus claiming an entire continent and its inhabitants for the country that financed his voyage? How about the 7th Cavalry for that matter? Put down that Ayn Rand fairy tale book and get with the program - RESIST BY ANY MEANS.
 
 
+3 # Virginia 2012-07-22 09:56
The government already bought it with the bailout - problem is they (Congress and the Administration) were either too stupid, lazy or part of the cover-up and failed to make disclosure of the financial resource trail mandatory...the y don't know what they paid for. But looking at the mortgage-backed securities trusts that show no losses until about 2010 (if at all) when 2/3 of the loans were not paying since 2009 and the trusts are dwindling down and assets are being depleted - I would say it's a safe bet BAILOUT funds have paid off most of the defaulted loans in the trusts. I'd rather see municipalities recoup some of their lost securities investments than continue to allow the banks to make money from the privacy information they shared and fraudulent claims of debt.

That would be a good thing except for the fact that the banks continue to bundle and trade the paid off loans and debt. It would have been smarter to stop the entire fraudulent scheme and re-assess the disaster rather than allow the fraud to continue. But it's an election year and politicians want their Bankster donations.

Think of this way - by doing nothing, requiring no disclosure, failing to implement regulatory laws and taking a police action against the banks after the Congressional investigations and reports is like letting Madoff out of prison on good behavior.
 
 
-13 # ronnewmexico 2012-07-21 08:01
Correct me if I am wrong...but early on did not certain judiciaries attempt to reign in the excesses of terms in the mortgage loan(essentiall y rewriting the terms).....and get specifically spanked.....tol d they overreached their authority by impetus of congress and the presidential office???

Seems very similar to the idea of domain....meani ng it is a alternative but what has changed so they(congress and the president)...wi ll not take measures to see it does not happen, perhaps challenging it judicially??

I could be wrong in this but have some dim recollection.
 
 
+13 # JSRaleigh 2012-07-21 09:10
Quoting ronnewmexico:
Correct me if I am wrong...but early on did not certain judiciaries attempt to reign in the excesses of terms in the mortgage loan(essentially rewriting the terms).....and get specifically spanked.....told they overreached their authority by impetus of congress and the presidential office???

Seems very similar to the idea of domain....meaning it is a alternative but what has changed so they(congress and the president)...will not take measures to see it does not happen, perhaps challenging it judicially??

I could be wrong in this but have some dim recollection.


There was a suggestion early on after the housing bubble popped to allow bankruptcy courts to give homeowners the same consideration corporations receive during bankruptcy, i.e. allow them to force the banks to renegotiate the mortgages on the basis of current value the way corporations are allowed to bust unions when they go into bankruptcy.

It was only a suggestion, never implemented.
 
 
+22 # Eddyiron 2012-07-21 08:26
MidwesTom: So are you saying we should try nothing. That's a defeatist attitude.

wantrealdemocraacy: Your solution is not at all practical or possible. Also, Romney would be more likely to take the side of Wall St.

Izzylee: Not everyone can afford to do what you did. When all else fails, the government has a role to play. People are getting screwed and need to be helped. You don't sound like a liberal: liberals believe in a strong government. Republicans believe in minimal government, but only when it suits them.
 
 
+12 # Doll 2012-07-21 08:31
Municipalities can also seize foreclosed property for unpaid taxes - it the banksters failed to pay the taxes.

And if the banksters do pay the taxes, they are helping to support the municipality.
 
 
+17 # DemocracyNeedsDefenders 2012-07-21 08:37
It seems like a good idea. Not only will help some mortgage holders directly, but it will force changes in big bank behavior. As for MRP's profits, we have to face the fact that nothing in this world happens unless someone makes a profit. So let's wish them Good Luck!
 
 
-14 # fernly2 2012-07-21 08:57
More privatization? Really?
 
 
-16 # JSRaleigh 2012-07-21 09:06
It's a SCAM. The idea is being pushed by Vulture Capitalists.

It will essentially take people's homes away from them and give their property to a "private investor", who will turn around and flip the properties.
 
 
+17 # tonenotvolume 2012-07-21 10:27
Where's your proof and what's your alternative? Did you read the article closely? Do you clearly understand the problems with underwater mortgages? Or are you just another member of "I Hate Government" because....?
 
 
+21 # LiberalRN 2012-07-21 10:55
Quoting JSRaleigh:
It's a SCAM. The idea is being pushed by Vulture Capitalists. It will essentially take people's homes away from them and give their property to a "private investor", who will turn around and flip the properties.

They don't own "their" homes now - the mortgage-holder does, and when underwater, people pay the mortgage-holder for negative equity. (There were and are huge problems in figuring out exactly WHO the mortgage-holdin g entity was, given the "chopped and channeled" nature of some of these, but never mind.)The change here is who holds the mortgage and whether it represents the value of the home. The "home-owner" is still paying the mortgage holder in either case, but this scenario has the value reset back to "fair market" through eminent domain, so the mortgage amount and thus, the payment schedule, are renegotiated. The reason "private investors" are needed here is likely because the local governments are, because of revenue losses and unemployment leading to more, underwater themselves. I agree with Working Class that a LOCAL public bank doing all of this, answerable to the citizenry alone, would be the best solution, but the bank has to have monetary assets in order to retool and lend, but a bankrupt municipality would have difficulty pulling that off.

Believe me, I get VERY wary when I hear the words "private investors" these days... it's become code to me for "sell off the assets of the public to the moneyed few."
 
 
+1 # ronnewmexico 2012-07-21 09:13
Where do I get this stuff..to my dim recollection some certain judicial areas early on did attempt to modify the terms of the loans(NY I think was one)....these judicially were found overreaches of authority and somewhere in subsequent federal legislation we may find a reinforcement of this opinion.

The specifics on all of it...would take me days to research..if you have not even heard a word of this I'd suggest you may not be a source for it....my recollection is not that dim.

Allowing a resetting of terms and amounts in forcloseur court would really have in some places stopped this thing dead in its tracks...powers that be would not allow it, as it created difficulties for the banks, and put at risk to a extent the loan base itself.

There obama administration favored not this solution.
AS the properties are now many so depreciated they retain value only of land(5 plus years of no occupancy or maintance)....I am very cautious pf the intents of the banking industry .....now they are sitting on very depreciated assets...early on they were not.
So who and what they decide to allow or not fight may be a factor in this not of moral purity but to get the most they can from the defaults.

This is why though these homes were mostly newly built or close to(subprime) they now compete not with new homes ....they are becoming junk.
So the playing field of this thing is changing.
 
 
+12 # Jaylu 2012-07-21 09:30
Historically, back as far as Roman times, people got out from under The Big Thumb by hunkering down and working only at a local level. They managed to save themselves that way. I hope this plan works.
 
 
+18 # Working Class 2012-07-21 09:33
Local governments need to take this idea one step further. Create a public bank and use the value of the properties taken by eminent domain, together with their tax receipts to create loans to deserving home owners and small to mid-sized companies. This would create much needed lines of credit for those trying to hang on to their homes and those trying to expand their business. Let the private banks risk private money. Use public money for public good. Pump it back into the communities it came from.
 
 
+11 # 4yourinformation 2012-07-21 09:54
I hate the idea that this idea is to use more privatization in order to try for some kind of resolution. I agree with Matt that we need a full-blown government takeover of this situation, but we have Barack Obama, creampuff president.

What I do like about this plan is that in Idaho, where I am member and coordinator of Occupy Boise's Policy Advocates group, I can take this plan to Boise City, where we have already been discussing with them new ideas about solving problems. We have promoted the idea of a city-owned investment bank, moving the city accounts to smaller banks or credit unions and improved homeless facilities and supporting the Move to Amend action.

Soon, we are going to introduce them to Participatory Budgeting and now, I think this MRP idea. Along with selling the MRP, we will stress that if there is a pushback from Wall Street on the buybacks, they should just throw up their hands and declare to the citizens that the banks are uncooperative and that we need to build the city-owned bank. No more big private investors. This might give impetus for a state-wide bank (Idaho HCR 030) proposal, modeled on the North Dakota bank.
 
 
-8 # squinty 2012-07-21 10:03
Using eminent domain to seize blighted communities so the state can resell homes at current value to local investment firms?

I think this plan is naive to the point of retardation. Google "eminent domain abuse" to find out what happens when a government takes homes away from private citizens in order to sell them to businesses and developers.
 
 
+5 # Working Class 2012-07-21 13:37
Quoting squinty:
Using eminent domain to seize blighted communities so the state can resell homes at current value to local investment firms?

I think this plan is naive to the point of retardation. Google "eminent domain abuse" to find out what happens when a government takes homes away from private citizens in order to sell them to businesses and developers.


It's been done. I don't support it, but the US Supreme Court did. See:

Kelo v. New London
Supreme Court of the United States
Decided June 23, 2005

"The governmental taking of property from one private owner to give to another in furtherance of economic development constitutes a permissible "public use" under the Fifth Amendment. Supreme Court of Connecticut decision affirmed."

Kelo v. City of New London, 545 U.S. 469 (2005)[1] was a case decided by the Supreme Court of the United States involving the use of eminent domain to transfer land from one private owner to another private owner to further economic development. 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.

It can be argued that it is in the public good and overall economic growth of a community is advanced by keeping people in their homes.
 
 
+1 # squinty 2012-07-21 18:29
Yes, I'm well aware of the Kelo decision and it was a travesty, and it didn't have anything to do with helping distressed homeowners keep their houses. It had everything to do with graft and corruption, and letting the state seize property from poor people and profit by selling it - cheaply - to rich developers.

The city of New London was trying to kick people OUT of their homes.

Google "eminent domain abuse."
 
 
0 # Observer 47 2012-07-21 21:27
I have to agree here. Kelo was a horrendous decision. While the plan that Matt describes sounds good in theory, it also assumes that MRP is going to deal honestly, and that the properties that are seized will actually be offered back to the residents at fair market value. Those are two big assumptions, considering that it's much more profitable to sell such properties to developers. Having been a victim of it, I loathe the idea of eminent domain in the first place, but I'd be very afraid of abuses in this scheme. I don't know how it could be guaranteed that the plan would actually work as advertised.
 
 
0 # squinty 2012-07-29 19:08
Gotcha, we do agree then. I didn't catch the part in your first reply where you said "I don't support it."
 
 
-5 # ronnewmexico 2012-07-21 10:18
Problem is...when appealed to a regional federal court likely ...reasonable costs for the property seized will likely amount to....the value of the loans originally held.....

So the municipality on appeal ends up having to pay out the loan value by court order...

so the banks sitting on loans with no market nor payees gets in the end......top dollar for the properties, original loan value....by us the taxpayer...how sweet!!!

Point being...this industry is not dumb......they are sitting on depreciated assets and will do anything to get in the end top dollar(value of the original loan) for them...this appears one way

The banks would not appeal the valuations...of course they would.....is litigation costs and time involved figured into this equation...I suspect not.

The right to take the land is well founded in law...the value of the land determination.. ....not so set in stone is that....depends ....location how the eminent domain law is versed and past judicial response to valuation issues....

If the industry does not fight it......I'd guess for us..it sucks.
Are they really fighting it....or just in this place?
 
 
+4 # anyfreeman 2012-07-21 10:48
I admire and respect Matt Taiibi for his courage and depth of knowledge in financial reportage.
Historical precedents indicate selective use of eminent domain is a very very bad idea, and should be avoided.
First and foremost, the fact that the investors are able to leverage local authorities to manufacture advantages created by fraud and deceit creates an immediate opportunity to double dip on conflicts of interest.

Second, until the issue of title and note is really settled, it institutionaliz es the fraud, and clouds titles further, while simultaneously releasing the miscreants from justice by clearing the cloud they created.

However, if there is a method to hold the banks and bad actors responsible for the shortfall caused by their market manipulations, this process could be functional.

My fear is that the local communities that occurred in the last debacle will be victimized for another generation of more by the rentier class.

Not a solution - just a prescription for more greed and exploitation.
 
 
+2 # ronnewmexico 2012-07-21 11:04
It has always been clear to me that as these peoples were subject to a systemic fraud legally...the terms of all the loans should be subject to renegotiation.

The hoops and barrels to stop that legally and legislatively from happening could be devolved as well at they were initially evolved by the industry with complicity of the legislators and the executive...

Till then....any number of seemingly innovative solutions will occur to remove the hanks from these depreciating things...and provide initial, long gone valuations to them...

They would absolutely love at this point..for governments of any sort to buy them out at not depreciated value,

So I would be very very careful.....non e clearly wanted to help earlier...why suddenly and why not before offered this or any other potential solution..I would always be asking.

In the particular is it only that in this place specifically the valuation mechanism and appeal process is not to their favor..so they fight it strongly.
Others perhaps they would not fight......so strongly.
 
 
+4 # MindDoc 2012-07-21 11:47
Taiibi gives a nice summary of the current market forces in relation to "housing stock" and the plight of the 'underwater' mortgage holder (person). I do think most would find it desirable to somehow keep homeowners in their homes, and make that a top priority in any new scheme. There will still be a 'profit motive' for the new broker-class of housing stock, surely, and fair/reasonable (not onerous or usurious) solutions are needed.

I do get a visceral chill when I consider how a town mayor or council might condemn property in this manner (unilaterally?) and hand it over to (any) new financial entity. (And the banks?)

My sense is that aside from the political and economic, most people don't believe taking property by eminent domain, when families are living there, is wrong, with no urgent highway project or water dam construction necessitating property seizure via eminent domain. We need to consider how it would impact not only the housing stock, but the people struggling to keep their homes. (Often, it's not their fault, as some of the scenarios here describe: collapsing neighborhoods and home values in a vicious cycle, etc.) Would condemning a half block inhabited by stressed-out, tapped-out citizens - for the sake of handing the mortgages to a non-bank - be helpful or harmful?

Are there risks? Is this "Anti-American" or even (thus far) unConstitutiona l ? Is property seizure justified by 'public good' in this case? Questions...
 
 
+1 # barbaratodish 2012-07-21 12:00
Eminent domain may be a good start! What may follow may be that we eventually learn that OWNING anything, property, even ourselves, is an arrogant illusion! Maybe in the future we will all realize that the BEST we can do is attempt to BE instead of have anything. "Having" is, as Marx tried to communicate, alienation from being. Of course we need to "have" our basic needs met, but even the most raw, basic esential subsistence is alienation as well unless and until we transcend even HAVING existence, to BE CONSCIOUSNESS!
 
 
+2 # WahSupDoc 2012-07-21 12:34
"Private investors" seems code to me too.. property seizures for private gains. It's already going on in municipalities now, in the name of 'blighting homes' for private development. On the surface this sounds like a grand idea but I'm skeptical the idea would really help the actual homeowners.
 
 
+4 # davegowdey 2012-07-21 12:45
I like the idea as a temporary measure -but like others I think that if it isn't a government program like the HOLC the consumers will wind up getting screwed in the end. Giving private equity access to eminent domain, even indirectly, has always proved to be a bad idea in the past. The general idea has a lot of merit, but the devil is always in the details. However, this unfortunately ignores the bigger problem. Until the bubble, average housing prices in the US were remarkably stable at about 3 times annual median inocme in a community. The bubble pushed housing prices to 8 or 10 times median income, or more, in much of the US and used gimmicky variable rate mortgage instruments to compensate. For the housing market to recover, prices have to get to that normal 3 times median income amount - and in a lot of communities there is still plenty of room yet to fall to get to that place. Intervening to prop up prices higher than that will harm consumers and subsidize the continuation of a reduced bubble. Ultimately the solution to the housing crisis is to lower housing prices to that 3 times median income level, or to raise middle class salaries so that median incomes rise to meet housing prices. This solution will only be helpful in doing the first if it doesn't seek to keep housing at inflated prices to benefit investors and speculators. How likely is that?
 
 
+5 # Working Class 2012-07-21 13:22
LiberalRN raises the point that the banks own the mortgages. This begs to question, do they really. An very large percentage of the paperwork was processed by something named MERS, which makes proving title on the part of the banks very difficult. This fact can, and should be, used as leverage against the banks when they try to resist. If the paperwork did not comply with existing laws that apply to transfer of title, then the whole question of rightful ownership is called into question. This is not a road the banks want to go down.
 
 
+2 # ronnewmexico 2012-07-21 13:32
Increased housing prices, since homes serve as the biggest by far source of credit for other purchases serves beyond that of just helping investors and speculators.
Home value it largely a state of value or worth...all credit is derived from perceived value or worth.

They say it took home prices 18 years to return to pre depression levels..which is a sobering thought,

That all aside....as the median income has been largely stagnant to down and the value of the dollar has been highly variable I would be reluctant to use such median income housing value numbers as constants for comparison.

So many things have affected housing value and median incomes in the last five or so years.....many external to the US....I'd be hard pressed to use that.
Not directly related but in a way...the numbers that determine recession expansion and such have built into then a calculating formula for dollar appreciation and depreciation... .it times of extreme divergence, I have not seen how they accurately reflect both....normal they do..abnormally they do not....

These seem abnormal times overall to me.Some use such things but perhaps not the absolutes they were,.
I'd say existing home prices will continue to be pressured downward and new home prices now to rebound upward...due to foreclosure home amounts.
Corrolated a bit the two but all thrown out due to the abnormality of very many foreclosed homes.
 
 
+3 # mdhome 2012-07-21 13:58
I fail to see how it is in any banks best interest to have an unoccupied house and no payments while it becomes an eyesore to the neighborhood and rapidly becoming unsaleable at any price that would make them any money, how many months will it be before the place can be sold, meantime their losses mount up. No payments on their loans, how do you figure that is better than readjusting the mortgage loan with the current homeowner.
 
 
0 # ronnewmexico 2012-07-21 15:37
Can they?....most subprime were written under terms of agreement that applied to a lower than credit worthy customer....the least worthy at the end of the spectrum.

so in the present environment... would the borrower meet current standards to possess a loan on the home....

I'd say mostly..no. they do not qualify as the standards have tightened...the equity in the home is not enough to offset the risk.
So to my opinion..mostly they could not. If this was 2005...sure no problem, the standards were basically nonexistent or filled by not being true on the application.

A readjustment is not just changing the rates basically it is a reapplication of sorts.....you would have to terminate the old agreement and restart a new one...not just arbitrarily change a rate..federal help and guidelines are available on this but they could not expect payment without knowing who signs the readjustment actually has a chance of paying.

Many subprime homes were considered affordable at the time by the buyers... only concurrent with appreciating values and the expectation of sale of such. flipping.
I am not a banker but that is my reasoned guesstimate.
Sure they will take a big loss in the end..but every loss is a tax gain so....I wouldn't cry about them to much.

These things in the end, many of them..I bet they bulldoze them...it is so sad.
 
 
0 # Howard T. Lewis III 2012-07-21 18:41
A most noble proposal to save the invested labor and gold for attempted purchases of homes in California with its sinking economy.
Last year, most every penny of federal income tax collected went to pay the interest on the national debt.This is a serious leak in the U.S. boat. States, especially California are not much better or are actually worse off. In California, as well, the boat is sinking. This remedy is not so much a bailout as it is pulling out one cork to shove it into another leak. True, it is a serious transient assist to many homebuyers, but does it stop the flow of 'water(debt) into the boat' and thus stop it from sinking(into debt)? No. It extracts wealth from California and sends it where Schwartzenegger sent the ENRON $4 billion embezzlement, with the attendant smoke and mirrors and the ever-present flashpot of financial instrument dreck. It will help many for awhile and create opportunities and a time delay, with more interest payment demands filling up the foundering boat.
 
 
0 # John Steinsvold 2012-07-21 18:51
An Alternative to Capitalism (if the people knew about it, they would demand it)

Several decades ago, Margaret Thatcher claimed: "There is no alternative".
She was referring to capitalism. Today, this negative attitude still persists.

I would like to offer an alternative to capitalism for the American people to consider. Please click on the following link. It will take you to an essay titled: "Home of the Brave?" which was published by the Athenaeum Library of Philosophy:

http://evans-experientialism.freewebspace.com/steinsvold.htm

John Steinsvold

“Insanity is doing the same thing over and over and expecting a different result."~ Albert Einstein
 
 
-3 # ronnewmexico 2012-07-21 19:15
And the consequences of this great debt were.....

apparently a stronger dollar, standard rates of inflation and ease at selling treasuries at auction.

So we must then ask why.....why is because we are applying economic necessities of the past to the present.....the US is now empire and one of the benefits of empire is perceived security of its held properties......

so needing security financially.... all come to america and roost there....china buys our bonds as they are safe...not really to control us. As do others....

The world no longer needs safety...then the debt is a issue.
So it will be a issue, but not in the present environment.
So we prepare for the future and reign it it..but now...it is free money they are paying to buy our bonds at interest rates that do not approximate real inflation rates.
They are loaning us money(buying treasuries) and paying us to be loaned to..which is what real negative interest rates on bonds is....

Eventually stop borrowing...sur e we must.....now right now..makes not a lot of sense.
California has been in lala land for years. Hiring a superhero to sase the day spoke to the mentality.
They wanted a free ride benefits of government and to not pay for them....so now...right now they will have to....taxes will be raised and/or benefits of government cut....case closed...welcom e to the real world california, superheroes are for comic books.
 
 
+2 # NAVYVET 2012-07-21 19:18
Let's revisit the entire structure of property taxation while we're at it. It seems more rational to:
--give owners who beautify or improve their grounds or buildings a tax CUT. An extra tax cut should be awarded owners who add renewable energy devices, as long as these meet specifics for community safety and aesthetic standards.
--give owners (slumlords and absentee landlords who've moved out of state) who let their properties fall into disrepair an extra tax burden. Give them a strict time deadline to do essential repairs and clean up unsightly messes--and "unsightly" should be very strictly defined! It should not be applied to someone who displays symbolic items (religious or other) on the lawn or house, or political protest signs in the yard. Eccentricity should be encouraged.
"Unsightly" should mean abandoned junked cars, fridges, etc., high weeds, trash, broken windows, and that ilk.
--If the greedos won't or can't do the needed improvements, then take their property into the public treasury and sell it cheaply at auction to someone who promises to comply. Again, a deadline should be fixed.
--Finally, get school taxes entirely out of the property tax cycle. They should be income taxed to property owners, but not to renters, who get whammed for it anyway in their rent.
 
 
+2 # bikewriter 2012-07-22 05:30
Fabulous idea that could actually work. At least until Congress passes a law making it illegal. Because anywhere Wall St profits are threatened, they will suddenly develop a taste for regulation.
 
 
0 # Mfullerton 2012-07-22 06:05
As a person that was foreclosed on, I can tell you my loan is owned by Freddie Mac. BofA was the services. And after foreclosure the loan was sent back to Freddie Mac. If the government wanted to do something, they could force Freddie Mac and Fannie Mae to renegotiate those loans, but they won't. Instead of Freddie Mac working with me, they prefer to sell the house at a loss. It is very disheartening to know they will package my and other loans to sell to a private investor. The investor will then rent those houses back to those people who were foreclosed on.
It was commented that people should give up ownership and become renters. That poster does not seem to understand how satisfying it is to own ones home.
On another note and I may be incorrect, didn't GWB do something similar in TX with the Texas Ranger's stadium.
 
 
0 # ronnewmexico 2012-07-22 09:50
The government is in a tough position..if they allow those who do not qualify anymore for loans to have new loans at lower rates restructured loans...they than can be said to be in their own way writing subprime...just at better rates..

As the government essentially owns those institutions they are mandated to run them reasonably(what they did not do in the past).....so they are in a pickle.

The actuality is of course exactly as stated and a great personal tragedy...I am not saying it is not but that there is reason and rational for acting in this manner.

All the loans were caused by a climate of defraud and corruption...al l the terms should have been allowed to be rewritten..judi cially that was a easy right solution.
The judicial solution was removed by subsequent ruling and legislation.... the industry would not allow it...as they own those in the legislative and executive branches...they got what they wanted.

That could be changed back...but major changes to the congress and presidency would have to occur.... a new party perhaps or officials who did not depend for corporate monies to be elected.

It is a great tragedy and theft...obama supporters do not look at this plainly only with binders on......
Now.....they will try any manner of subterfuge to get full dollar back on the loans....any manner...we must be very careful their hands are in every pie.
 
 
0 # Bigfella 2012-07-22 19:54
This what America is all about . Helping Americans in America. (No foreign investors please on this one.)

Yep two of my fellow citizen have been shot after buying USA housing stock! Both are now dead....keep out of the USA property market for shore or end up dead!
 
 
0 # dkonstruction 2012-07-23 10:53
The question for me is: what does the government do with the properties they take over? HUD is currently auctioning off properties it has taken over from fannie and freddie so if this is what they intend to do here then the program is indeed another scam (as JS Raleigh commented and for which he/she got many thumbs down for reasons i don't understand). These, however, will be pre-foreclosure properties and so, again, the question is what happens to them (and the residents) after the government takes them over. If, the current owners are able to stay in the home (as renters) with an opportunity to repurchase at some point in the future then this would certainly be a step in the right direction. For those that simply cannot afford the home (no matter what the modification terms) the properties should either be held by the governement and maintained as "affordable" rental properties or turned over to resonsible community-based non-profits who should also be required to permanently maintain these properties as affordable housing.
 
 
0 # MDSolomon 2012-07-27 08:58
"... the county could cut the mortgages to the current value of the homes and resell the mortgages to a private investment firm ..."

Yes ... and use the proceeds to start its own bank. This is how we build alternatives to Wall Street!
 

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