View 731 Friday, July 06, 2012
The morning LA Times has a story about San Bernardino County studying a proposal to use eminent domain procedures to acquire underwater county homes, then negotiate new financing for the householders so that they can continue to live in their houses. The Times didn’t seem to know what to think about it, but when the Rush Limbaugh show came on his substitute certainly did: it is theft, he said. Robbery. Thievery.
The scheme is simple: the county seizes homes whose value is less than the mortgage. The county then pays the banks who own the mortgage the fair market value of the houses, and in essence holds the mortgage for all those living in the houses who are willing to pay for them at the reduced value and at the reduced payment rates. The county charges the current interest rates or perhaps a bit more to help finance the bureaucracy and the whole seizure-remortgage process (current proposals contemplate a minimum bureaucracy and private contracts for most of it). The banks who made the loans eat the loss, but they do get the current fair market value of the house. In the ideal case the householder has paid something as a down payment. One presumes that he ‘loses’ that in the sense that when this process begins the householder has zero equity, but since the refinance will be, presumably, a thirty year fixed interest mortgage, the householder begins to build equity from that moment on. He goes from negative equity to zero.
I am not at all sure this is theft. I’m not sure it’s a good idea, but it’s worth discussing, and the more I think on it the better it sounds. Yes, the bank loses the difference between the amount loaned and the current fair market price. The question is, hasn’t the bank already lost that? The county gets the benefit of a householder owner who will keep the house from falling into desuetude. The county economy gets the backload of underwater domestic real estate cleared and a normalization of the housing market. The householder gets the house at the cost of all of his now-non-existent equity.
Do the benefits outweigh the intrusions? This is a county effort. Not state, and certainly not Federal. It is a bit of strain on the eminent domain precedents, but it’s not that great an extension of the power and presumably it could be written to make precise what it’s precedent for. Among other things it concerns owner-occupants, not properties occupied by renters, or abandoned places bought for a flip. I do note that even those might be discussed: what you don’t want is a lot of vacant housing turned into flophouses and drug centers.
It makes sense on the moral side. For good or ill the government did persuade people to get in over their heads. There has been considerable time since the housing bubble burst. I do not see this as encouraging more people to play flip games and inflate a new bubble. And the banks are not being robbed of anything they actually have, assuming that the fair market price assessments are honestly done.
I think if I were a San Bernardino County Commissioner I might be persuaded to vote for this; I’d certainly listen to the pitch.
Anyway that’s what I was thinking about on my morning walk.
Here is a mystery that has me puzzled, presuming that the facts are as stated. I’ve seen nothing else about it. Anyone know what’s going on?
Eric is here and we’re going to get some cleanup work done this afternoon.
The Ray Bradbury Memorial LASFS meeting is tomorrow, Saturday July 7 at 2 PM at the LASFS clubhouse. Ray joined LASFS in the early days and has been a member ever since. A number of people will tell Ray Bradbury stories.