California city backs plan to seize negative equity mortgages.

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**Frazzled**

http://news.yahoo.com/california-city-approves-eminent-domain-negative-equity-mortgages-090351924.html

California city backs plan to seize negative equity mortgages.

.........Edit content preferencesDone ..
Jim Christie 4 hours ago .By Jim Christie

RICHMOND, Calif (Reuters) - Richmond, California's leaders approved on Wednesday morning a plan for the city to become the first in the nation to acquire mortgages with negative equity in a bid to keep local residents in their homes.

The power of 'eminent domain' allows governments to seize private property for a public purpose. Critics say the plan threatens the market for private-label mortgage-backed securities.

Richmond's city council voted 4 to 3 for Mayor Gayle McLaughlin's proposal for city staff to work more closely with Mortgage Resolution Partners to put the plan crafted by the investor group for the city to work.

Richmond can now invoke eminent domain if trusts for more than 620 delinquent and performing "underwater" mortgages reject offers made by the city to buy the loans at deep discount pegged to their properties' current appraised prices to refinance them and reduce their principal.

A mortgage is under water when its unpaid balance is greater than its property's market value.

MRP has failed to get similar plans approved by local governments elsewhere - most recently in North Las Vegas, Nevada and earlier this year in San Bernardino County in Southern California - as the mortgage industry and local real estate businesses rallied against them.

But in Richmond, MRP found an ally in a Wall Street-bashing Green Party mayor of one of the San Francisco region's poorest cities who sees working with the investor group to acquire mortgages as a public purpose if it makes the loans more affordable, averts foreclosures and alleviates blight.

Richmond's residents have been "badly harmed by this housing crisis," McLaughlin said, defending the plan and partnership with MRP during an often contentious city council meeting that began Tuesday evening and ended early Wednesday morning. "Too many have already lost their homes."

City council members opposed to the plan countered that using eminent domain would put Richmond at risk of expensive lawsuits that could destroy the city's finances.

"A 1 percent chance of bankruptcy from this program is a deal-breaker for me," Councilman Jim Rogers told a crowd of about 300 people at the meeting, moved to a city auditorium from the council's chamber.

Other council members warned of a backlash from financial institutions, noting Richmond had no takers last month when the successor to its redevelopment agency put $34 million of bonds up for sale to refinance previous debt. The eminent domain plan had been disclosed to the U.S. municipal bond market.

While housing advocates urged support for the plan, realtor Jeffrey Wright warned that going through with eminent domain could prompt a clampdown in mortgage lending in Richmond or push up mortgage interest rates in the city of about 104,000 residents.

Responding to the plan, the Federal Housing Finance Agency recently said it would press Fannie Mae and Freddie Mac to limit or cease its business where such proposals get approved, effectively closing off most mortgage financing there.

Investors holding the mortgages targeted by Richmond dispute altruism motivates the plan and charge the city would lend its eminent domain power to San Francisco-based MRP to split profits from refinancings.

The investors have sued through trustees Wells Fargo & Co and Deutsche Bank AG in U.S. District Court to block the plan, which they say relies on them swallowing losses. The two sides square off in court in person for the first time on Thursday.

McLaughlin's proposal directs city staff to work with other local governments interested in the plan, calls for city staff and MRP to resolve its legal issues and confirms the city council would hold votes to seize mortgages by eminent domain if necessary. That would require a supermajority vote of the council.

(Reporting by Jim Christie; Editing by Toby Chopra)

..

**Aerethan**

I read this as:
A city is trying to help it's residents keep their houses, and an industry that took advantage of the system in place is mad that they'll take a loss on it.

I feel no sympathy for the real estate companies involved here. That industry in general is a cluster feth with little to no regulation on terms of loans.

What happens to all these companies when they foreclose every house they loan on, and no one can afford to buy them? How I see it is they can either take a minor loss by revising the loans to better terms and lower rates, or they can take a likely larger loss by foreclosing a house that no one will buy.

Sure, people probably shouldn't have bought houses they couldn't afford long term. But penalizing a city for safeguarding the people who pay for that city to exist sets a bad precedent for real estate companies. Eventually they'll piss of the wrong city.

**Frazzled**

I agree. I think all California cities should do this and sell the repurposed mortgages to the private fund MRP, which just happens to be a big Democratic donor.
Now I know no one bought the bonds the city just floated when it noted it was going to do this, but thats purely a coincidence.
This isn't crony capitalism at all. Its for the working man!

**Aerethan**

Frazzled wrote:
I agree. I think all California cities should do this and sell the repurposed mortgages to the private fund MRP, which just happens to be a big Democratic donor.
Now I know no one bought the bonds the city just floated when it noted it was going to do this, but thats purely a coincidence.
This isn't crony capitalism at all. Its for the working man!

Sarcasm noted, and please don't misconstrue my tone as democratic, because I'm not.

I'm all for capitalism, but companies who leech every ounce of profit out of a market forfeit the right to bitch about the market bottoming out and losing money. If mortgage companies didn't want to lose money, they shouldn't have given it to people who couldn't realistically pay it back. These companies knew damn well that someone with an income of $3000/mo couldn't afford a mortgage for $2000/mo when it's a family of 4. Yet they loaned that money out anyway, and when things got tight they raised the terms and foreclosed on a house they loaned too much money for.

So the bank lent $500k to Larry for a house. Larry couldn't float the payments 2 years in, and the market tanked so that house is now only worth $300k. So the bank set themselves up to take that 200k loss. They are not entitled to bitch about that. It's their system. They loaned the money. I'm sure there were certain kickbacks from the government to give out those loans, but the banks still should have seen that low income households cannot cover high mortgages.

Then we had the government give those same banks a feth ton of money to not fall apart. Which was entirely the wrong way to spend that money. Every cent of that bailout should have gone to paying off those mortgages(with strict regulation of course) so that the banks still got their money, but no one lost their houses over it(since those same homeowners are who have to pay off the bailout anyway).

Instead, the bank got money for the house that they foreclosed on anyway.

**Frazzled**

Then let it foreclose. the bank loses its shirt in the auction resell.

This is taking mortgages to the benefit of another private group.

Don't worry though, no one in that district will be able to get a mortgage in the future if they actually do it. Or if they do so, it'll make credit card interest look like a loan from the Pope.

**Aerethan**

Frazzled wrote:
Then let it foreclose. the bank loses its shirt in the auction resell.

This is taking mortgages to the benefit of another private group.

Don't worry though, no one in that district will be able to get a mortgage in the future if they actually do it. Or if they do so, it'll make credit card interest look like a loan from the Pope.

I understand that, and I don't agree with forcing one company to take a loss so that another can profit.

The principle of using eminent domain to prevent a local economy from collapsing is what I approve of, especially when it's banks that are taking the losses.

I agree that no one there will ever get a good loan again.

**Frazzled**

Its using eminent domain to protect people from their own investment decisions.

It would be interesting to see what the entertainment expenses were for MRP with the government, and how many government officals' relatives made such poor decisions.

**Aerethan**

Frazzled wrote:
Its using eminent domain to protect people from their own investment decisions.

It would be interesting to see what the entertainment expenses were for MRP with the government, and how many government officals' relatives made such poor decisions.

A fair enough point that the homeowners shouldn't have bought houses they couldn't afford, but the banks who gave them money knew damn well the risk they took when they gave that money.

So yes, the government that we pay for should protect us in certain aspects, housing certainly being one of them, food and water being the other 2.

I'm not saying they should bail us out all the time. It should be heavily regulated, and the mortgage should be floated by the city, not sold off to some company.

I can't feel bad for developers and banks who feel that a house that cost 100k to make is worth 700k(an average house cost where I live currently) and then they lose money on them. Charge reasonable rates for houses and you'll see people buy them. The current system for buying a house is convoluted and broken.

**Frazzled**

So if anyone loses money in any investment the government should bail them out?

What if they didn't in fact lose money and the mortgage is just "under water" if you're buying the house to live in then its irrelevant what the market value is. If its just an investment that should be yours and the Bank's problem.

What about the people who prudently did their mortgages and paid them off.

Why are taxpayers getting involved?

**Aerethan**

Frazzled wrote:
So if anyone loses money in any investment the government should bail them out?

What if they didn't in fact lose money and the mortgage is just "under water" if you're buying the house to live in then its irrelevant what the market value is. If its just an investment that should be yours and the Bank's problem.

What about the people who prudently did their mortgages and paid them off.

Why are taxpayers getting involved?

"investment" removes from mind the fact that these loans aren't just investments, they are homes. Someone buys a car they can't afford, sure repo it and they can ride a bike. Now I suppose sure the people losing their houses could rent, but that still leaves the foreclosed house empty and the lender taking a loss.

Which is why the bailout should have been handled very differently. The banks still got their money, but they also kept all the houses that money was covering losses on. Why should I have to pay taxes to pay back a loan I didn't approve, to companies who were reckless with their own money and ended up losing it all? I'd much rather have given that money to Larry to pay off his house so that he could continue a decent life and his 3 kids didn't have to share a room in a crappy apartment.

**Grey Templar**

No, just no.

The government should not use Eminent Domain to seize bad mortgages. Let the poor decisions of the lenders and borrowers involved play out.

If it was a bad idea for the banks, its a heck of a bad idea for the city to do it.

And its bad for the people too. Sure, they get to stay in their homes. For now... But what if next year the city decides your subdivision would be better as a shopping mall? They can just kick you out and sell the land to a developer.

**Aerethan**

Grey Templar wrote:
No, just no.

The government should not use Eminent Domain to seize bad mortgages. Let the poor decisions of the lenders and borrowers involved play out.

If it was a bad idea for the banks, its a heck of a bad idea for the city to do it.

And its bad for the people too. Sure, they get to stay in their homes. For now... But what if next year the city decides your subdivision would be better as a shopping mall? They can just kick you out and sell the land to a developer.

I agree that it does set a slippery slope.

The problem with "letting it play out" is that the federal government already got involved when they gave all of our money to the banks without asking.

**Frazzled**

Like I said, it is my firm hope that all the other cities and counties in California attempt to do the same.

Now, some might say, since I vowed never ever ever to go voluntarily back to Cali after escaping in one piece (mostly), I'm a bit biased...

**Aerethan**

Frazzled wrote:
Like I said, it is my firm hope that all the other cities and counties in California attempt to do the same.

Now, some might say, since I vowed never ever ever to go voluntarily back to Cali after escaping in one piece (mostly), I'm a bit biased...

In 6 short months I'll be in Austin, far from the overpriced shores of Orange County and all it's votes that don't matter.

**Frazzled**

Oh no, another Californian coming to our fair country (Tex Mex), plundering our natural resources (co-eds).

**hotsauceman1**

Shoot, richmond is like 25 miles from me, not that far. I hope my city doesnt decide to pull this gak

**d-usa**

Frazzled wrote:
Oh no, another Californian coming to our fair country (Tex Mex), plundering our natural resources (co-eds).

Some occupations are done by people driving tanks armed with shells.

Some are done by people driving bicycles and scooters armed with Starbucks.

**Frazzled**

d-usa wrote:
Frazzled wrote:
Oh no, another Californian coming to our fair country (Tex Mex), plundering our natural resources (co-eds).

Some occupations are done by people driving tanks armed with shells.

Some are done by people driving bicycles and scooters armed with Starbucks.

What about people who drive tanks armed with Starbucks?

protip-Texas quarantines all Californians for three years. People don't realize "moving to Austin" is actually the quarantine zone. Those that pass their tests are let out into greater Texas. Those that aren't are forced to remain in Austin. Giving up Austin is a sacrifice, but its for the greater good.

**Alfndrate**

Frazzled wrote:
d-usa wrote:
Frazzled wrote:
Oh no, another Californian coming to our fair country (Tex Mex), plundering our natural resources (co-eds).

Some occupations are done by people driving tanks armed with shells.

Some are done by people driving bicycles and scooters armed with Starbucks.

What about people who drive tanks armed with Starbucks?

protip-Texas quarantines all Californians for three years. People don't realize "moving to Austin" is actually the quarantine zone. Those that pass their tests are let out into greater Texas. Those that aren't are forced to remain in Austin. Giving up Austin is a sacrifice, but its for the greater good.

Why not just send them to El Paso instead of Austin?

**whembly**

Alfndrate wrote:

Why not just send them to El Paso instead of Austin?

Because some of 'em are keepers.

**hotsauceman1**

Why does everyone HAte california?
We are the ones that give you the smartphones you love so much. The Beach Girls you like to oogle and dont forget the quality hemp

**Alfndrate**

hotsauceman1 wrote:
Why does everyone HAte california?
We are the ones that give you the smartphones you love so much. The Beach Girls you like to oogle and dont forget the quality hemp

My Smartphone was made in China, hot country girls are better than hot beach girls, and hemp is a terrible material

**hotsauceman1**

But who designed it?
Face it, Texas just wish they can be california.
Also, remember who makes all the movies.

**d-usa**

The Midwest is the prime exporter of white trash and damaged goods. Take that California!

**Polonius**

Right or wrong, the litigation costs are going to be fierce.

And I'm not sure "allowing people to keep their homes" is going to fly for eminent domain. Nobody is comfortable with New London (the case holding or the real life economic aftermath).

**Mr. Burning**

Hang on a mo.

Negative equity does not prevent people from paying their mortgages nor does it mean homeowners are out on the streets.

It just stagnates the market a bit since owners of properties under negative equity cannot realistically move.

Why does mom and pop tax payer have to foot the bill?

**whembly**

hotsauceman1 wrote:
But who designed it?
Face it, Texas just wish they can be california.
Also, remember who makes all the movies.

I love California... my dad's family still lives there in Anaheim.

Great place to visit... would never live there though.

Texas? Texas' only fault is the frick'n heat... not that it's that is much worst than what we see in St. Louis, MO... they hold the heat a wee bit longer.

I'd move Texas if I could... and I'm making longterm plans to do just that once my boys are off to college.

**Frazzled**

Alfndrate wrote:
Frazzled wrote:
d-usa wrote:
Frazzled wrote:
Oh no, another Californian coming to our fair country (Tex Mex), plundering our natural resources (co-eds).

Some occupations are done by people driving tanks armed with shells.

Some are done by people driving bicycles and scooters armed with Starbucks.

What about people who drive tanks armed with Starbucks?

protip-Texas quarantines all Californians for three years. People don't realize "moving to Austin" is actually the quarantine zone. Those that pass their tests are let out into greater Texas. Those that aren't are forced to remain in Austin. Giving up Austin is a sacrifice, but its for the greater good.

Why not just send them to El Paso instead of Austin?

They might wander into New Mexico. Except for certain very small areas, New Mexico has already been cursed by God. It would be wrong to curse them with Californians too.

Automatically Appended Next Post:

whembly wrote:
Alfndrate wrote:

Why not just send them to El Paso instead of Austin?

Because some of 'em are keepers.

That too.

Automatically Appended Next Post:

hotsauceman1 wrote:
Why does everyone HAte california?
We are the ones that give you the smartphones you love so much. The Beach Girls you like to oogle and dont forget the quality hemp

Its just friendly banter, like the white hot burning hate of a thousand suns...

Smartphones come from China.
None of the beach girls are actually from California.
the hemp is from Mexico.

Automatically Appended Next Post:

Mr. Burning wrote:
Hang on a mo.

Negative equity does not prevent people from paying their mortgages nor does it mean homeowners are out on the streets.

It just stagnates the market a bit since owners of properties under negative equity cannot realistically move.

Why does mom and pop tax payer have to foot the bill?

Exactamundo. Negative equity is a term dreamed up by Californians on why they think they should get (another) bailout.

Automatically Appended Next Post:

d-usa wrote:
The Midwest is the prime exporter of white trash and damaged goods. Take that California!

yea Midwest!

**Alfndrate**

Frazzled wrote:
They might wander into New Mexico. Except for certain very small areas, New Mexico has already been cursed by God. It would be wrong to curse them with Californians too.

My parents lived for 17 years in El Paso, Tx and Las Cruces, NM. I've only ever been to Houston and that was for a funeral.

**StarTrotter**

Aerethan wrote:
Frazzled wrote:
Like I said, it is my firm hope that all the other cities and counties in California attempt to do the same.

Now, some might say, since I vowed never ever ever to go voluntarily back to Cali after escaping in one piece (mostly), I'm a bit biased...

In 6 short months I'll be in Austin, far from the overpriced shores of Orange County and all it's votes that don't matter.

Congratulations! You shall get to join the one place in Texas where democrats are the majority and pretty much every other part of Texas hates you

and don't worry, there's only one party in Texas anyways. Have fun voting between republican and tea party

(I will say homes are quite cheap in Texas!). Joking aside Austin's alright (granted I'm stuck in the college part). In terms of what California is doing... eh I'm kinda caught between Frazzled and Aerethan on this one. At one part I think they did it in a foolish way, at another part eeeh the banks knew it all the while.

Also don't worry about the Texan heat! It only makes the food cook faster! (also we claim right to Tex Mex and you can't do anything about that)