Sunday, May 18, 2014

Underwater Home Loans Fixable With Eminent Domain, Says Mortgage Firm

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By Cornelius Nunev


A California-based mortgage services firm has a novel idea to curb the amount of underwater home loans. The idea is to use the power of eminent domain, whereby local government authorities would "condemn" the underwater mortgages and force a refinance.

Considered very controversial

Among the powers of the federal, state and local government authorities in the U.S., and certainly one of the single most questionable, is the power of "eminent domain." Eminent domain is the right of a government to seize land from its owner for the "public good," as not doing this would be considered detrimental to public welfare. Home or land owners whose property is thus seized must be compensated for the loss of their property.

Eminent domain seizures are typically for things like highway extensions and so forth. For instance, according to New Jersey.com, the city of Hoboken recently used eminent domain to appropriate a 1-acre parcel of land from a landowner for use as a park, offering the owner $2.3 million in spite of the land being valued at $10 million. It is highly controversial, as many civil libertarians consider it among the worst abuses of government power.

Novel use

A property is known as "condemned" when eminent domain is used, but Mortgage Resolution Partners, a California-based real estate company, wants to condemn the loans associated with the property. This is the idea MRP has brought up, according to Reuters.

One idea that MRP brought up would be to get private investors with a lot of cash to buy the loans from customers, according to Reuters. Then, the property would be seized from banks meaning less would be paid for the house than it is really worth. Then, MRP would sell the loans to brand new investors and lower payments to help the mortgage borrower. This would be a good plan considering 22 percent of the mortgages in the country are underwater according to CoreLogic estimates and Zillow estimates that number to be higher at 31.4 percent, according to CNN. These customers might really appreciate the help.

The action would be funded by investors, which means the only government involvement in California would be to turn in the eminent domain paperwork. There would be no taxpayer dollars used.

Not the law yet

MRP has taken the proposal to a ton of local governments in California already, and a lot of people liked the idea a lot since California could really use a pick-me-up. The Hesperia Star explained that even though 50 percent of homeowners in the city are underwater on their home loans, the city council already turned the bill down.

Homeowners are at higher risk for foreclosure when they owe more than a property is worth in a loan, which is called negative equity. The same Zillow survey from before found that 90 percent of underwater homeowners are current on their payments as of right now, which shows most people are paying the payments diligently anyway, according to CNN.




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