OOPS! Here it is,
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The Piner Enterprise LLC
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Voice: 678-658-7991
Republicans party has become the “Almond Joy Party”. Sometime they
act like a nut and sometime they don’t.
Editorial Comments by Clarence Piner Jr
Minority Birth Rate: Racial and Ethnic Minorities
Surpass Whites In U.S. Births For First Time, Census Reports. In 1980
when I attended the U S Army Sergeants Major Academy (Class 15) at Ft. Bliss,
in El Paso, Texas was the first time I heard about this issue. I think all of
my classmates were stung by this revelation. Clearly to my knowledge no one had
ever discussed this issue in any of the training classes I had every attended.
This started a big buss with my classmates.
I didn’t hear any of my college classmates talking about this subject
during the two universities I attended in the 90’s.
This
article lay out for everyone to see why Republicans at the national, state and
local levels have been working for the last twenty five years to put in place
plans to negate the numbers that they have been seeing. They want to make sure
they have power for the at least the next twenty five to fifty years. All of
this blocking the vote has been part of their master plans. With the bible in
one hand and the flag in the other they are constantly talking about how they
love America and how they want freedom for all except women and people of
color.
Mind you
Republicans have never said aloud in recent time how much they hate “Women and
People of Color” however, all of their actions speak louder than words. They
have in large numbers stated their hate for President Obama. For the most part
very few people have spoken out against this behavior. I don’t recall any other
Chief Executive of the nation being disrespected by the people who benefitted
the most from his policies. Do you recall all of these claims of the President
not being a Christian and being born in another country? To add insults to
injuries there were some who suggesting he give them his complete educational
history; for what purpose who knows? Some of these crazy nuts even created web
sites portraying the President as Hitler. I don’t recall any other white
President being called a liar by a member of congress and not being sanction by
the leaders of that fine body. Let me say it, if this President was white or
Republican the outcry would have been so loud we would still be hearing it on
Fox news.
No member
of the Congressional Republicans leadership ever asking this member of congress
to apologize for his bad behavior and poor decision making. Instead, he raised
more money for his reelection than he ever had for this truly bad performance
of demonstrated poor leadership. If this is the kind of total bad behavior from
our national leaders no wonder we are a nation in decline. We appear to have
lost our abilities to show other the respect they deserve. As most of you know
to receive respect you must first give respect to receive it. All of these
ideas are part of their bigger plans; to regain control over “people of color
and women” someday put us in what they believe to be our places.
Keep in
mind this is the same congressman who refused to pay child support and owe his
ex-wife over a 120k in back child support. How can anyone be elected to
congress to help manage the people business when they can’t manage their
business. In my mind this speaks volume about the people who elect people like
this to office. If the people can’t make better judgements than this we are in
big trouble as a nation.
To some this may be a leap, I am of the
opinion that some Republicans white men have demonstrated their dislike for
women. Believe it or not some women are agreeing with them. I am having a
problem thinking that some of our women think so little of themselves; that
they voted for men and women who think rape is ok and women don’t need any
birth control. I guess what they really want is total control over their women
as well as all women.
I think
after the reelection of President Obama has raised the stakes in favor of
women. His administration has indicated that they are not interested in have
women become slaves to men like the Republicans “old white males” wants. There
are a number of right wings web sites that still don’t accept the facts that
they lost the Presidential and Senatorial elections. I even saw one that said
they think the President should come to them with the same old broken ideas to
gain their support. Right wingers, you
lost, get over it and move on. From this point forward the rules of the games
have changed either you embrace those changes and get on board or get in the
way and be run over by the changes that are coming.
Eminent
Domain Fight Closely Watched By Other Struggling Communities; The housing market was built on
a pyramid scheme. Bankers stopped lending as housing prices continued rising
rapidly. In the neighborhood where we were living in 2005 the prices of the new
homes being built prices increased by 10K overnight. I said to one of the
realtor who were selling these overprices nightmares this isn’t going to last.
He responded to me you better buy now because by next weekend the prices will
be up by another 10K. At this point I asked him who is buying these outrages
overprices houses? His reply was investors and suckers there is one born every
day. He was smiling as he made the last statement as if to say I will get you
soon.
In cities across the nation, some
people were left holding overpriced mortgages were people of all classes’
accept the top 2% home buyers. People of low to moderate income who made the
mistake of buying or refinancing in 2005 and 2006 were in big trouble and
didn’t know it. Some of these borrowers would later ended up in foreclosure
took out interest-only loans to buy homes they knew they couldn't afford. Others
were tricked into signing contracts they didn't understand by unscrupulous
brokers. These crooks were running wide open and no one was at the control.
Bankers, loan officers, brokers crooks were all running wild with their schemes
and ways to steal as much from their customers as possible. During this time
period “greed was good” for the crooked mortgage bankers. But homeowners in
their cross hairs were in real trouble and didn’t know it.
At one point my wife and I were
testing the water trying to see if we could sell our home and take advantage of
this wave. We ran across a sub division with a house that had all the bell and
whistles that made it very attractive to both of us until we came to financing.
Here is what they wanted us to do, the realtors wanted us to take out a large
loan on our current home for one year, the company selling the new home would
pay the mortgage on our old home we would used the money as our down payments
on the new home and make the mortgage payments. Needless to say we turn down
this offer for being to risky. The real problem is what happens if we can’t
sell our old home within the one year. In both of our mind we rejected this
risky deal given the same set of circumstances I am not sure what we would do
today. I believe we would make the same decision.
During this time we got emails,
phone calls stating we can reduce your monthly payments with a lower interest
rate all of which was a lie. The only things they were trying to do are giving
us more debt. Most of these companies were home based in Florida. The laws at
the time gave them legal cover for these scam operations. Customers were
looking for help from any place just as long it was going to give them relief
and keep them in their home. Most Americans caught in this mortgage mess had
most of their wealth lost during this time period.
One day before the mortgage melt
down my wife asked me if we would every become a millionaire and my words to
her was if things keep going the way they are in two years we will become
millionaires. She stated that was good and we were doing the right things.
Little did we know what was waiting on us down the road? The train jump off the
tracks, first, my wife lost her job, next came the full impact of the housing
meltdown, then the Wall Street melt down. Later the banking, insurance and auto
industries were line up like a row of dominoes waiting their time to meet their
fate. At that time we didn’t have any ideas about the full impact on our
dreams. Later we found that the country was in a full melt down of all major
financial systems were hanging on the cliff of total collapse. We lost about
60% of our total wealth during this whole debacle. All of the sacrifices and
hard work both of us had been making to prepare for our retirement years.
There are plenty communities
around the country who are under water with their housing markets. These cities
have tried almost everything to extricate themselves from this housing mess. Of
course, large mortgage bankers are whining like the rats they are. When the
ball was in their court and they had a chance to fix the problems and they
chose to do nothing but punt the ball down the road. In their minds they think
they will lose money what they fail to remember is they have already lost lots
of money and stand to lose plenty more.
If I were in the leadership of
one of these major mortgage banking company I would be peddle to the- meddle to
get this off of my books and behind me as quickly as possible. This has got to
be a great drag on their balance sheets. They aren’t paying taxes, manage the
properties correctly and cities are tied of this mess. Most of these locations
where these properties are located need the tax monies to support and manage
their cities.
To add
salt to our wounds these system “greedy bastards” came to the tax payers to
bail them out our President and the Congress had no choice but to bail them
out; or allow the total collapse of these systems. Once the funds were
dispensed to the system the guys who cause these systems to almost collapse
took the funds gave all of their people who were responsible for this a huge
bonus, so they could go on holiday with our money. They are laughing all the
way to their checking accounts.
Can you believe there is a
Congressman in California (one of the worst state with foreclosures) who is
trying to block those communities from taking action to clean up this mess? Representative John Campbell (R-CA) has come
out strongly against the plan, calling them, “awful policy, an unfair banana
republic kind of idea.” His bill, The
Defending American Taxpayers from Abusive Government Takings Act would halt the plan by preventing any
government insured mortgage loans from being made for 10 years in counties
implementing the program. According to Campbell government-backed loans make up
97% of all mortgages made nationwide. Congressman (R-CA) John Campbell is
working against his home state to solve their mortgage mess. Here is another
Republican on the wrong side of these issues; of course he is looking out for
big bankers they fund his campaigns.
Big bankers you guys screwed this
up and now it appears you don’t have the will to fix it. If you can’t or won’t
please get out of the way of the communities who are trying to get housing turn
around. Communities are working hard to stay afloat and meet all of their
commitments their creditors can’t wait they need their monies to meet their
obligations. I want to see these communities meet with success somebody has got
to lead and the mortgage bankers will not. Your time is up!
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Minority Birth Rate: Racial and Ethnic
Minorities Surpass Whites In U.S. Births For First Time, Census Reports
AP |
By HOPE YEN Posted: 05/17/2012 12:02
am Updated: 05/18/2012 6:58 pm
WASHINGTON (AP) — For the first
time, racial and ethnic minorities make up more than half the children born in
the U.S., capping decades of heady immigration growth that is now slowing.
New 2011 census estimates
highlight a historic shift underway in the nation's racial makeup. They mark a
transformation in a country once dominated by whites and bitterly divided over
slavery and civil rights, even as it wrestles now over the question of
restricting immigration.
"This is an important
landmark," said Roderick Harrison, a former chief of racial statistics at
the Census Bureau who is now a sociologist at Howard University. "This
generation is growing up much more accustomed to diversity than its
elders."
The report comes as the Supreme
Court prepares to rule on the legality of Arizona's strict immigration law.
Many states are weighing similar get-tough measures as fewer Hispanics are
opting to enter the U.S. due to the weak economy.
"We remain in a dangerous
period where those appealing to anti-immigration elements are fueling a
divisiveness and hostility that might take decades to overcome," Harrison
said.
As a whole, the nation's
minority population continues to rise, following a higher-than-expected
Hispanic count in the 2010 census. Minorities increased 1.9 percent to 114.1
million, or 36.6 percent of the total U.S. population, lifted by prior waves of
immigration that brought in young families and boosted the number of Hispanic
women in their prime childbearing years.
But a recent slowdown in the
growth of the Hispanic and Asian populations is shifting notions on when the
tipping point in U.S. diversity will come — the time when non-Hispanic whites
become a minority. After 2010 census results suggested a crossover as early as
2040, demographers now believe the pivotal moment may be pushed back several
years when new projections are released in December.
The annual growth rates for
Hispanics and Asians fell sharply last year to just over 2 percent, roughly
half the rates in 2000 and the lowest in more than a decade. The black growth
rate stayed flat at 1 percent.
The immigrants staying put in
the U.S. for now include Narcisa Marcelino, 34, a single mother who lives with
her two daughters, ages 10 and 5, in Martinsburg, W.Va. After crossing into the
U.S. from Mexico in 2000, she followed her brother to the eastern part of the
state just outside the Baltimore-Washington region. The Martinsburg area is
known for hiring hundreds of migrants annually to work in fruit orchards. Its
Hispanic growth climbed from 14 percent to 18 percent between 2000 and 2005
before shrinking last year to 3.3 percent, still above the national average.
Marcelino says she sells food
from her home to make ends meet for her family and continues to hope that one
day she will get a hearing with immigration officials to stay legally in the
U.S. She aspires to open a restaurant and is learning English at a community
college so she can help other Spanish-language speakers.
If she is eventually deported,
"it wouldn't be that tragic," Marcelino said. "But because the
children have been born here, this is their country. And there are more
opportunities for them here."
Of the 30 large metropolitan
areas showing the fastest Hispanic growth in the previous decade, all showed
slower growth in 2011 than in the peak Hispanic growth years of 2005-2006, when
the construction boom attracted new migrants to low-wage work. They include
Lakeland, Fla.; Charlotte, N.C.; Atlanta; Provo, Utah; Las Vegas; and Phoenix.
All but two — Fort Myers, Fla., and Dallas-Fort Worth — also grew more slowly
last year than in 2010, hurt by the jobs slump.
Pointing to a longer-term
decline in immigration, demographers believe the Hispanic population boom may
have peaked.
"The Latino population is
very young, which means they will continue to have a lot of births relative to
the general population," said Mark Mather, associate vice president of the
Population Reference Bureau. "But we're seeing a slowdown that is likely
the result of multiple factors: declining Latina birth rates combined with
lower immigration levels. If both of these trends continue, they will lead to
big changes down the road."
William H. Frey, a demographer
at the Brookings Institution who analyzed the census data, noted that
government debates over immigration enforcement may now be less pressing, given
slowing growth. "The current congressional and Supreme Court interest in
reducing immigration — and the concerns especially about low-skilled and
undocumented Hispanic immigration — represent issues that could well be behind
us," he said.
Minorities made up roughly 2.02
million, or 50.4 percent of U.S. births in the 12-month period ending July
2011. That compares with 37 percent in 1990.
In all, 348 of the nation's
3,143 counties, or 1 in 9, have minority populations across all age groups that
total more than 50 percent. In a sign of future U.S. race and ethnic change,
the number of counties reaching the tipping point increases to more than 690,
or nearly 1 in 4, when looking only at the under age 5 population.
The counties in transition
include Maricopa (Phoenix), Ariz.; King (Seattle), Wash.; Travis (Austin),
Texas; and Palm Beach, Fla., where recent Hispanic births are driving the increased
diversity among children. Also high on the list are suburban counties such as
Fairfax, Va., just outside the nation's capital, and Westchester, N.Y., near
New York City, where more open spaces are a draw for young families who are
increasingly minority.
According to the latest data,
the percentage growth of Hispanics slowed from 4.2 percent in 2001 to 2.5
percent last year. Their population growth would have been even lower if it
weren't for their relatively high fertility rates — seven births for every
death. The median age of U.S. Hispanics is 27.6 years.
Births actually have been
declining for both whites and minorities as many women postponed having
children during the economic slump. But the drop since 2008 has been larger for
whites, who have a median age of 42. The number of white births fell by 11.4
percent, compared with 3.2 percent for minorities, according to Kenneth
Johnson, a sociologist at the University of New Hampshire.
Asian population increases also
slowed, from 4.5 percent in 2001 to about 2.2 percent. Hispanics and Asians
still are the two fastest-growing minority groups, making up about 16.7 percent
and 4.8 percent of the U.S. population, respectively.
Blacks, who comprise about 12.3
percent of the population, have increased at a rate of about 1 percent each
year. Whites have increased very little in recent years.
Other findings:
—The migration of black
Americans back to the South is slowing. New destinations in the South,
including Atlanta, Charlotte, N.C., Raleigh, N.C., and Orlando, Fla., saw sharp
drop-offs in black population growth as the prolonged housing bust kept
African-Americans locked in place in traditional big cities. Metro areas
including New York, Chicago, Los Angeles and San Francisco had reduced declines
or gains.
—Nine U.S. counties in five
states saw their minority populations across all age groups surpass 50 percent
last year. They were Sutter and Yolo in California; Quitman in Georgia;
Cumberland in New Jersey; Colfax in New Mexico; and Lynn, Mitchell, Schleicher
and Swisher in Texas.
—Maverick County, Texas, had
the largest share of minorities at 96.8 percent, followed by Webb County,
Texas, and Wade Hampton, Alaska, both at 96 percent.
—Four states — Hawaii,
California, New Mexico and Texas — as well as the District of Columbia have
minority populations that exceed 50 percent.
The census estimates used local
records of births and deaths, tax records of people moving within the U.S., and
census statistics on immigrants. The figures for "white" refer to those
whites who are not of Hispanic ethnicity.
___
Associated Press writer John
Raby in Charleston, W.Va., contributed to this report.
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San Bernardino Eminent Domain Fight Closely Watched By Other
Struggling Communities
Posted: 09/01/2012 4:25 pm Updated: 09/25/2012 3:29 pm
San Bernardino County CEO Greg
Devereaux is weighing a proposal that would have local governments condemn
mortgage loans.
Part I
SAN BERNARDINO, Calif. -- This
old railroad town in the heart of the Southern California foreclosure belt
doesn't attract many visitors these days, especially not in the blazing summer
heat. Yet on a recent Thursday morning, a handful of well-heeled business
travelers from the East Coast hurried along a sidewalk to address a government
official they have come to know well.
Gregory Devereaux is the chief
executive of San Bernardino County and its 2 million residents. At his urging,
local authorities are considering a proposal that would allow local governments
to exercise their power to seize private property without landowners' consent
in a dramatic -- some say radical -- new way.
Governments usually use this
power, known as eminent domain, to acquire private land for public purposes,
such as roads or utility lines. But this plan, proposed by a San
Francisco-based venture fund Mortgage Resolution Partners, calls for government
authorities to seize the mortgages of underwater borrowers, paying the
investors that own them a fraction of what they are owed, using money borrowed
from the fund. Homeowners could then refinance with a federal loan at a much
lower rate, based on what their home is actually worth instead of what they owe.
Supporters say the plan would
send a supercharged bolt of energy into the housing market, spurring economic
development and preventing even more of the foreclosures that have wrecked many
communities.
"It is a disaster of epic
proportions," said John Vlahoplus, chief strategy officer at Mortgage
Resolution Partners, of the dramatic decline in home prices that in many areas
has left homes worth less than half what the borrowers paid. "The crash
has devastated the family wealth of these communities."
The groups from the East Coast,
representatives of the mortgage finance industry, don't like this idea much at
all. They have worn a path to Devereaux's office in recent months to tell him,
and anyone else who would listen, that the proposal amounts to nothing less
than a threat to the entire mortgage finance system, and an assault on free
enterprise and the U.S. Constitution.
A public hearing on the proposal
was held Aug. 16 by a special government panel formed to consider measures that
would help local homeowners. Lobbyists attended, warning that any community
that implements such a plan would face sharply higher borrowing costs and an
avalanche of lawsuits.
"We believe using eminent
domain would reduce access to credit for borrowers and would, at a minimum,
result in lengthy and costly litigation," said Timothy Cameron, a managing
director of the Securities Industry and Financial Markets Association (SIFMA).
"If private capital would
come in, they would view the loans as only partially secured," said Edwin
Groshans, an analyst at investment advisory group Height Analytics.
He predicted that mortgage
interest rates in the area would soar up to 10 percent.
"The math around eminent
domain does not work under any circumstance," said Chris Katopis, the
executive director of the Association of Mortgage Investors. "You would be
robbing Peter to pay Paul."
Proponents, meanwhile, argue that
bold measures are worth considering in the face of a festering foreclosure
crisis. Recent modest increases in home prices have done little to help the
estimated 16 million underwater homeowners nationwide, who, according to the
real estate valuation website Zillow, collectively owe $1.2 trillion more than
their homes are worth.
The proposal also comes amidst
broad frustration with the Obama administration, which has so far refused to
offer a broad-based plan to bail out underwater borrowers, even as taxpayers
have spent hundreds of billions of dollars to prop up banks.
"We've seen a bailout of the
banking industry, but no bailout for homeowners," said Arie Giddens, a San
Bernardino resident whose home is worth less than half the $300,000 she paid
for it in 2005, according to Zillow.
About a dozen communities have
voiced some level of interest in the eminent domain plan, including Chicago,
Sacramento, New York's Suffolk County and most recently -- according to sources
familiar with the discussions -- Detroit. Not coincidentally, these communities
have also been particularly hard hit by the housing crisis. In San Bernardino
County, more than half of all homeowners are underwater, and the foreclosure
rate is three-and-a-half times the national average.
"Everyone here has a friend
or a family member who has lost their home to foreclosure," said Greg
O'Donnell, the development director at Neighborhood Partnership Housing
Services, a housing nonprofit in Ontario, Calif.
At the public hearing, Devereaux
said the eminent domain plan is still far from reality.
"Thank you very much,"
he said more than once in response to the mortgage industry lobbyists'
criticism of the plan. "We appreciate your involvement."
Nothing had been decided yet, he
cautioned. Mortgage Resolution Partners has not even submitted a formal plan
yet, he said.
What worries the finance industry
is that nothing has been ruled out, either.
Officials in other jurisdictions,
by all accounts, are waiting for someone else to make the first move. That
someone, if it is anyone, will likely be Devereaux. What he thinks could
determine whether the eminent domain proposal winds up on a scrap heap of
failed ideas to resolve the housing crisis -- or sets new legal precedent on
the way to providing mortgage relief to a population at the highest statistical
risk of losing their home to foreclosure.
It has come to this: More than
five years after home prices fell like a rock into a well, the last hope for
some borrowers stuck at the bottom could be a public official unknown even to
many citizens of his own county.
LONG SLOW DECLINE
The cities of San Bernardino
County form the heart of California's Inland Empire, a vast metropolitan area
that stretches east from Los Angeles deep into the desert hardpan.
The empire, once farmland, and
later the visible symbol America's peculiar love of the two-hour car commute,
is now crumbling -- especially in those communities where the housing bubble
gave residents the greatest false hope for an economic turnaround. Hardest hit
is the city of San Bernardino, the county seat.
A visitor can stroll downtown
along a stretch of the old Route 66 for blocks at a time without passing
another pedestrian or an open business. On the outskirts of the city, near the
freeway, salesmen at the handful of car dealerships still in business hunker
indoors to escape temperatures that often register above 100 degrees in the
summer, waiting for customers that rarely come.
The unemployment rate is 15.7
percent, and the city filed for bankruptcy protection Aug. 1. Political
gridlock threatens tough decisions about how to close a $45 million-a-year
budget deficit. Vendors are paid in cash, and City Hall recently almost ran out
of toilet paper, according to Casey Dailey, a policy adviser to the mayor.
Hard times didn't come overnight.
Over the last quarter century the
three biggest employers near San Bernardino either cut back dramatically (Santa
Fe Railroad, now part of BNSF Railway Company) or closed down completely
(Kaiser Steel, Norton Air Force Base).
Many of the former employees of
the companies left and were replaced by lower-income families, many fleeing
violence and drugs in Los Angeles. The death of good jobs drove the median
income for a family of four down dramatically, to less than $45,000 a year.
"The face of the city
changed rapidly," San Bernardino Mayor Pat Morris said in an interview
late one afternoon this month.
The housing boom, for a while,
promised a cure to the city's economic ills. The industry of building, selling
and refinancing homes -- plus all the ancillary businesses; like roofing,
painting and landscaping -- yielded good-paying jobs and needed tax dollars.
But it was all an illusion. Homes were sometimes bought and sold for a higher
price within days. Median home prices rocketed up, peaking at $382,000 in June
2006.
Then everything stopped. The
national housing market was revealed to be a monumental pyramid scheme. Banks
stopped lending, and financing for new projects evaporated.
"It was a complete
meltdown," Morris said.
In 2008, San Bernardino didn't
issue a single new building permit. Last month the median county home price
ticked up a bit from the month before -- to $167,800, according to Zillow.
In many cases, in San Bernardino
and across the nation, those left stuck holding overpriced mortgages were low-
and moderate-income borrowers who made the mistake of buying or refinancing in
2005 and 2006. Some of these borrowers who later ended up in foreclosure took
out interest-only loans to buy homes they knew they couldn't afford. Others
were tricked into signing contracts they didn't understand by unscrupulous
brokers.
These borrowers have now largely
moved out of the system nationwide. Those who are struggling to hang on now
typically fit a very different demographic. They borrowed, or refinanced, at
relatively modest rates and are facing foreclosure because they lost a job, had
hours reduced, or had a health problem or some other misfortune.
They include Edmundo Gomez, who
is trying to figure out how to save the La Puente, Calif., home he shares with
his wife, Isela, and their two children.
Gomez refinanced twice before the
housing crash. The first time, he said, a contractor he hired to build an
addition on the house stole his money, and he was forced to take out a second
loan in order to hire someone to finish the job. "The contractor vanished
with our money," he said. "The house was a wreck."
But the payments stretched the
limits of what he could afford. Working 15-hour days at two different jobs, he
managed to stay current until two months ago, he said.
Then Gomez lost his job at Lumber
Liquidators, where he worked from 10 a.m to 4 p.m. after working all night at a
local grocery store. "We ran out of money," Gomez said. "The
payments are just more than we can afford."
In order to keep the home, Gomez
needs to lower his monthly payment of $2,043, he said. But that payment already
reflects a low 2.25 percent interest rate, which he obtained through a previous
modification through IndyMac Mortgage Services, which manages his loan account.
Lisa Vargas, a housing counselor
working with Gomez, thinks the lender might be willing to lower the interest
rate to 2 percent and wrap up the missed payments in a new loan. But this won't
do much to lower the payments, she said.
"It's not a game
changer," she said.
FEW
HOMEOWNERS GRANTED PRINCIPAL REDUCTION
The problem for Gomez is the principal. He owes $413,000 on a home worth $217,000. IndyMac won't consider him for a loan modification that forgives some of this debt because the private investor that owns the loan won't allow it, according to Vargas.
The problem for Gomez is the principal. He owes $413,000 on a home worth $217,000. IndyMac won't consider him for a loan modification that forgives some of this debt because the private investor that owns the loan won't allow it, according to Vargas.
This is a scenario that housing
counselors say they face all the time. Refinancing at lower interest rates is
very helpful for many borrowers, but others are so deep underwater that the
only way they can realistically expect to save their homes is through some form
of debt relief, usually called principal reduction. But the odds of the average
borrower qualifying are slim.
Though most homeowners associate
their mortgage with the bank or other financial institution that mails them
their monthly bill, in most instances, these companies merely service, or
manage the loan. That is because loans are bought and sold on the secondary
market like any other commodity. Though this happens without input from the
borrower, where a loan winds up matters greatly when it comes to qualifying for
principal reduction.
The most fortunate are the
500,000 to 1 million underwater borrowers, whose loans are held on the books of
one of the five banks, including Bank of America and JPMorgan Chase, that
agreed earlier this year to offer at least $10 billion in debt forgiveness.
Though an early report on whether this help is reaching many homeowners is
mixed, the banks must reach this target or face financial penalties.
The second and largest pool of
loans are owned or controlled by the government-owned mortgage companies Fannie
Mae and Freddie Mac. Of these mortgages, an estimated 3.3 million are
underwater. These borrowers don't qualify at all for principal reduction.
Edward DeMarco, the acting director of the Federal Housing Finance Agency who
essentially calls the shots at Fannie and Freddie, has said that giving debt
relief to some borrowers would threaten the covenant between borrowers and
lenders, and encourage those making their payments on time to default and cash
in.
Private investors, including
pension funds like California Public Employees' Retirement System and the giant
bond fund Pacific Investment Management Co., own much of the rest of the
outstanding mortgage debt, which adds up to about 10 percent of all loans.
These mortgages, though small in
number, are most likely to be deeply underwater, and thus are in the most
danger of failing. Privately owned loans are three times as likely as Fannie
Mae or Freddie Mac loans to be underwater, for example. Vlahoplus of Mortgage
Resolution Partners said the eminent domain proposal is designed to target
exactly these privately held mortgages that are at the highest risk of
foreclosure.
Yet principal reduction on these
privately held loans almost never happens, for reasons that aren't entirely
clear. The banks that manage the loans typically argue that their contracts
with private investors prohibit principal reduction. And since the loans are so
often sliced and diced into bonds owned by many different investors, there is
usually no single entity that the banks can approach and ask to revise the
agreement -- though many private investors have said that this interpretation
is nonsense.
"Investors have been as
abused by servicers as many consumers," Katopis, the executive director of
the Association of Mortgage Investors, said in an interview with The Huffington
Post. "We understand it is sometimes worth taking a 30 percent loss to
avoid a 60 percent loss."
Katopis, who has lobbied against
the eminent domain proposal, said his organization would support a broad-based
federal principal reduction plan, such as one put forward last month by Oregon
Sen. Jeff Merkley (D-Ore.). The plan would establish a trust to purchase
underwater private-label mortgages with revenue from government bonds. Analysts
at JPMorgan Chase have estimated that the proposal could help 1.2 million
underwater borrowers nationwide.
Morris, San Bernardino's mayor,
acknowledges the need for housing assistance and laments the decision last year
by California Gov. Jerry Brown (D) to eliminate redevelopment aid to his city and
many others. San Bernardino lost $30 million, some of which was earmarked for
affordable housing. The decision "tore our heart out," he said.
For now, though, he is on the
sidelines of the eminent domain dispute, leaving Devereaux to take the lead.
EVERYONE WATCHING DEVEREAUX
Devereaux, a trim man with
wire-framed glasses and a closely cropped grey beard, has held jobs in Southern
California local governments for 35 years, since he moved from his native West
Virginia.
Last fall, he said, Cathy
Creswell, then head of the California Housing Finance Agency, introduced him to
Steven Gluckstern, the executive director of Mortgage Resolution Partners.
Gluckstern had an interesting
idea: Authorities would seize home loans -- crucially, not the properties themselves
-- that fit a defined set of characteristics: underwater, held in private
trusts and still current, meaning that homeowners were still making monthly
mortgage payments. The local government would then forgive all of the debt in
excess of what the home was worth and help homeowners refinance at a new, lower
value.
The pension and institutional
investment funds that actually own these loans would get paid fair market
value. Mortgage Resolution Partners would pocket a $4,500 fee per loan for
fronting the money to make the purchase. Homeowners would gain a new incentive
to invest in repairs and upgrades to their homes, and gain hundreds of dollars
each month to spend on the local economy.
The plan could be customized to
fit the needs of the local community, Gluckstern said.
At first the calls were purely
informational, Devereaux said. The venture fund had an interesting idea and a
pipeline to capital to fund it, but no background in local government. Its
leaders were seeking his advice on how best to approach local authorities.
Devereaux thought the plan might
work for an estimated 20,000 to 30,000 homeowners in San Bernardino County.
"We were intrigued by the
idea," Devereaux said. "It was the first plan we heard that we could
execute on a significant enough scale to have an impact on the local
economy."
The mortgage finance industry
went bananas when it learned that San Bernardino County was weighing the
eminent domain proposal. But it is not just Wall Street that has voiced
opposition.
Last month, DeMarco, the top
regulator at the Federal Housing Finance Agency, warned that the agency might
"take action" against the county should it go forward with the plan.
And earlier this month, Chicago
Mayor Rahm Emanuel dealt the eminent domain movement in his city a serious
blow.
"I don't think it's the
power of the city to do, to deal with the housing issue," he said to
reporters, according to the Chicago Tribune, following a hearing on the idea.
"We have a national issue. I think we have to address the issue. I just
don't think that's the right instrument."
Even some advocates who typically
align themselves with consumers have voiced concern. "I don't think
eminent domain will be the answer to our problems," said Diane Thompson,
an attorney at the National Consumer Law Center in an interview with The
Huffington Post. "There are likely large practical and legal hurdles to
implementing it, and using eminent domain is a clumsy, slow tool, of necessity
of limited application and reach."
Backers of the plan shake off the
criticism. Local governments are fed up, homeowners are in crisis and local
economies can't recover with so many residents deep underwater on their
mortgages, they say.
As for the legal threats,
Vlahoplus, of Mortgage Resolution Partners, said that for all their bluster,
the investment groups don't actually have the legal standing to challenge local
governments on eminent domain. "You cannot by dint of being an investor in
a private entity control that entity," Vlahoplus, a lawyer, said. "They
made a bad deal, invested in those securities and the loans fell in
value."
The entity with that standing
would be the bank or other financial institution hired to "service"
the loans on behalf of the investors. So far, the banks haven't gotten
involved.
But his side, for now, has less
financial and political firepower than do the plan's opponents. The plan's most
powerful political backer is Gavin Newsom, California's lieutenant governor.
"We cannot let another day
go by while families are forced from their homes," Newsom said recently.
"We must think big and help our local governments develop solutions."
For now, everyone is watching
Devereaux.
At his urging, San Bernardino
County linked up with two of the cities in the county -- Fontana and Ontario --
where he had previously served as city manager. Together they formed a new
legal body, known as a Joint Powers Authority, to weigh the eminent domain plan
and any other ideas on how to help local homeowners. Devereaux is chairman of
the board, a position that allows him to guide the process.
Asked whether he was feeling any
pressure, he said that he had once faced a roomful of angry parents after gang
members had a shootout in a city park. "Now that was heat," he said.
Still, he acknowledged that the
mortgage finance industry has paid him many visits. "I'll talk to anyone
about it," he said. At one point, he pulled out a huge white binder filled
with data on underwater mortgages -- and the arguments against eminent domain
as a tool for turning those loans right-side up -- prepared for him by SIFMA.
Devereaux won't say whether he
ultimately will support the eminent domain plan or not. But he bristles at
push-back from those -- he didn't say who -- who have suggested that the county
shouldn't be exploring the eminent domain idea at all.
"When did we, in this
country, decide that it isn't OK to talk about a plan?" he said, getting
animated. "We are just talking. Never, ever did we say that this is
something we want to do or intend to do."
But, he said, authorities need to
do something.
"If we keep going the way we
are going," Devereaux said, "it will be a couple of decades before
the housing market and our economy recovers."
CORRECTION: A previous version of this post mistakenly referred to Senator
Jeff Merkley (D-Ore.) as Jeff Merkel.
Governments in Chicago, San
Bernardino, CA, and Suffolk County, NY plan to use eminent domain powers to
provide mortgage relief.
Created by Mortgage Resolution
Partners, the plan being considered would allow local government to seize mortgages
on homes of underwater borrowers using eminent domain laws. The bank holding
the mortgage would then receive current fair market value on the mortgage, as
opposed to the amount owed by the homeowner.
Gregory Devereaux, administrator
for San Bernardino County is considering the program, saying, “Federal programs
have not been very successful at all and private programs have been of limited
help.” The local government would not pay the money to the lender itself, but
instead will use Mortgage Resolution Partners’ money to acquire the loan so the
homeowner has the option to refinance the loan at the new, lower balance.
Mortgage payments would then be made to local government as owner of the loan.
Representative John Campbell
(R-CA) has come out strongly against the plan, calling them, “awful policy, an
unfair banana republic kind of idea.” His bill, The
Defending American Taxpayers from Abusive Government Takings Act would halt the plan by preventing any
government insured mortgage loans from being made for 10 years in counties
implementing the program. According to Campbell government-backed loans make up
97% of all mortgages made nationwide.
Currently, the federal government
has principal reduction loan modifications available to borrowers but only in
some states and with limited circumstances for Fannie Mae and Freddie Mac
borrowers. Loan modifications that use interest rate reductions or longer loan
terms as opposed to principal reduction are more widely available.
Ed DeMarco, head of the Federal
Housing Finance Agency has long opposed any principal reduction option, along
with and numerous Republican legislators. Many Democrats, including President
Obama, support principal reduction, asserting that it will lower default rates
and ultimately save taxpayers money.
David H. Stevens, president and CEO of Mortgage Bankers Association (MBA) is opposed to eminent domain. “Beyond the obvious legal issues of using eminent domain in such a radical way, government seizing mortgages will set a precedent… it will hurt those communities and borrowers it is most designed to help.”
David H. Stevens, president and CEO of Mortgage Bankers Association (MBA) is opposed to eminent domain. “Beyond the obvious legal issues of using eminent domain in such a radical way, government seizing mortgages will set a precedent… it will hurt those communities and borrowers it is most designed to help.”
San Francisco mayor Gavin Newsom
believes the restrictions on lending in areas using eminent domain may rise to
a civil rights issue. “San Bernardino County, which is furthest along in
considering the use of eminent domain, has a predominantly minority population
that suffered a disproportionate amount of subprime loan origination during the
bubble,” he wrote in a letter to the Justice Department. “Limiting credit in
those areas because the local government acts to acquire and refinance these
homeowners’ loans is geographic redlining.”
South Orange County 912 Project
co-founder Cathy Richardson opposes most uses of eminent domain but also
disagrees with Federal restriction of local governments. “Many knew the big
real estate bubble was going to burst and when it did, it was going to be huge.
This burst is partly to blame for our financial crisis. Congressman Campbell
wants to federally regulate what local governments can do to help their
municipalities even though it was the federal government’s fault in the first
place. He wants to punish local governments if they find another way out.
Eminent domain should only be used in extreme cases and as little as possible.
I’m more in favor of getting the federal government off the backs of state and
local authorities.”
Reporter
Government Accountability Network
Government Accountability Network
Something
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 eventually turn into a blueprint to 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 this program will work,
but it's certainly 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 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. I've heard many arguments on both sides about this particular
approach to the eminent domain concept. But either way, 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 (or 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 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.
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. I've heard these complaints from different voices,
including some belonging to government officials who 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 hasn't shown a 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 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:
"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 it's definitely intriguing to see them trying.
With millions of homeowners still
underwater, some local governments are considering a novel solution: condemning
their mortgages through the power of eminent domain.
“Federal programs have not been
very successful at all, and the private programs have been of limited help,”
said Gregory Devereaux, administrator for San Bernardino County, explaining the
government's decision to consider eminent domain, a plan the mortgage industry
considers the equivalent of the nuclear option. The hard-hit county's board of
supervisors is expected to meet Thursday to consider proposals to help
homeowners, including the possible use of eminent domain.
There are several ways a local
government could use eminent domain to write down mortgages, but the basic idea
is fairly simple. Much like the condemnation of a piece of land for public use,
the town or county would seek court approval to pay a “fair market” value to a
lender or investor holding a homeowner’s underwater mortgage. That amount would
be substantially less than the unpaid balance. Once the seizure is approved,
the local government would then offer to sell the smaller mortgage back to the
homeowner, who would refinance the outstanding balance with a new loan.
Not surprisingly the idea has
struck a deep nerve in the mortgage finance industry.
“It’s absolutely a reflection of
frustration, but that doesn’t mean it’s right and it doesn’t mean it’s responsible,”
said David Stevens, president of the Mortgage Bankers Association. “In cities
or counties where they pass ordinances to do this they’re going to make credit
availability extremely limited. And that’s just going to hurt recovery of those
communities much greater than families that would be helped.”
The idea has also drawn the ire
of the Federal Housing Finance Authority, the regulator of government mortgage
giants Fannie Mae and Freddie Mac, which last week threatened unspecified action to stop local governments from seizing
underwater homes through eminent domain. Together, those government enterprises
hold or guarantee roughly half of all mortgages outstanding.
Despite pressure from the White
House and more than 100 members of Congress, FHFA acting Director Edward
DeMarco recently repeated his opposition to the idea of writing down the
balances of some mortgages held in the government’s portfolio. That policy only
further demonstrates the need to attack the problem on a local level, say
proponents of the eminent domain idea.
“It almost doesn’t matter what
the federal government comes up with -- if they’re not going to allow it,
they’re not going to allow it,” said Robert Hockett, a Cornell University law
professor who has written in support of the plan. “We’d love to see an
FHFA with a different attitude toward principal write-downs. We’d love to see a
different head of FHFA if that’s what it takes.”
San Bernardino, a sprawling
county east of Los Angeles, twice the size of Massachusetts, has been hit hard
by the housing bust. The county unemployment rate stood at 12.6 percent June,
one of the highest in the nation. Median home prices have fallen to $150,000
from a peak of $370,000. The foreclosure rate is among the highest in the
country. With its tax base badly eroded, the city of San Bernardino recently filed for municipal bankruptcy after
disclosing a $46 million budget shortfall.
“Our issue is not the individual
homeowner,” said Devereaux, the county administrator. “Our issue is our
economy. And what is the moral rightness of keeping these people underwater and
keeping our unemployment rate high because we can’t get the housing market
going again?”
The idea is being discussed in
other municipalities, although it has not gotten far. In Chicago, Mayor Rahm
Emanuel this week shot down the idea, saying eminent domain is the wrong tool
to address housing problems, which he described as a national issue.
The well-established power of
eminent domain has traditionally been applied more narrowly to claim property
for new roads or facilities that at least arguably benefit the entire
community. Critics say seizing individual properties would benefit only the
homeowners who gets a break on their loan balance.
But proponents counter that local
mortgage seizures would serve the public good because they would help boost
local housing markets and speed economic recovery.
”They’re using their power for
the public good to improve the quality of life and services for their
residents," said Steven Gluckstern, a principal in Mortgage Resolution
Partners, a newly formed private company that is promoting the eminent
domain plan. “It’s a taking. It’s a tough word. It's a local community saying,
‘I can’t stand by and watch the continued degradation of my community so I’m
just going to take the loan.’"
The San Francisco-based
company is in talks with about a half-dozen local governments about
setting up mortgage condemnation programs, Gluckstern said. The company would
manage the program and help homeowners refinance their mortgages in exchange
for a $4,500 fee for each modified loan.
It is not clear whether efforts
to use eminent domain in this way would pass legal muster. Each case would have
to be approved by a judge, as is true in every eminent domain case.
"In eminent domain, (the
local government) sues the investors: that’s how it starts," Gluckstern
said. “They have only two claims: one is that you don’t have right to do this
and the other is that you’re not paying me fair value. Those two issues are
part of any eminent domain case."
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Part II to follow in the next newsletter…Thanks for reading
and becoming educated on this subject.
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