San Bernardino County residents push back against eminent domain

We are in agreement that using Eminent Domain is a BAD idea. What is your opinion?

San Bernardino County residents push back against eminent domain

Every resident and mortgage finance expert who spoke at a San Bernardino County meeting criticized the controversial proposal to seize underwater mortgages through eminent domain.

Local residents and mortgage finance experts lined up at a San Bernardino County hearing Thursday to push back against the idea of seizing underwater mortgages through eminent domain.

The county set up [2] a special authority committee to consider ideas for addressing the severe negative equity problem in the area. County officials did approve during the hearing Thursday the drafting of a formal request for proposals, which will be released at a future hearing.

The local government is considering using private capital led by Mortgage Resolution Partners to acquire current and underwater mortgages for less than fair market value, write down principal and refinance them into a Federal Housing Administration loan.

County CEO Greg Devereaux said they would consider many options, and signaled how unlikely the of use of eminent domain could be.

“I am certain this board would not approve a proposal that singles out eminent domain as an approach,” Devereaux said. “We are not here to look for any one approach. We are here to look for ideas.”

Residents in the area are suspicious of the eminent domain proposal and the investor group pitching it.

“I object to government sharing the immense power of eminent domain with private companies,” said Margaret Michaels, who lives in the area. “We give this power to our elected officials so we can vote them out if we want. This could be a loss of defenses for the homeowners.”

Sandra McCall said she moved into the area two and half years ago and wants to see a plan for more job growth that would involve local residents, not just private investors.

“It’s not right for the people who invested in this community for so long to see everything wiped out from under them because someone somewhere is making a lot of money,” McCall said.

Brenda Mayer of the local Cozy Cabins Realty firm said she was underwater and, like many at the hearing, wanted to see federal programs made more available. She supported the idea from Sen. Jeff Merkley, D-Ore., which would use [3] unspent TARP funds Congress already approved to buy the underwater loans and refinance them into FHA mortgages.

“We should be supporting our federal programs instead of local programs that can do more harm than good,” Mayar said.

Some from Wall Street spoke out against the eminent domain idea at the hearing as well. Edwin Groshans, with Height Analytics, said if the idea is put forth, Fannie Mae and Freddie Mac would likely not guarantee loans in the area. And private mortgage bond investors and lenders would price in the risk, which would push mortgage rates in the area to between 8% and 10%, according to his estimates.

“If private capital would come in, they would view the loans as only partially secured,” Groshans said.

Mark Dowling, CEO with Inland Valleys Association of Realtors, jabbed at the data the county was using, which is largely based on Zillow ($37.90 0.1%) [4] statistics. It showed more than half of borrowers in the general metro areas were underwater, but doesn’t drill down to just the county level, he said.

“The only research you’ve presented is a meager half page of info attributed to Zillow,” Dowling said. “How can you fix a
problem if you can’t understand the problem?”

Other areas of the country are also considering the option, most notably in Chicago. Mayor Rahm Emanuel came out against the idea after a hearing [5] last week. But the idea still has support from some.

Alderman Joe Moreno went on [6] Fox Business last week almost desperate for a solution and blamed banks for forcing governments to take such drastic actions.

“We haven’t gotten any other answers from the banking industry and Wall Street folks. We’ve gotten nothing. I’m intrigued because the lack of effort on that end forces government to look at other solutions,” Moreno said.

Not one person who spoke at the San Bernardino hearing Thursday supported the eminent domain idea.

Chris Katopis, who leads the Association of American Mortgage Investors, also criticized the lack of data and said his own studies show nearly three-fourths of borrowers in the San Bernardino area are underwater either because they took cash-out refinancings or put no money down on the original mortgage during the bubble.

“The math around eminent domain does not work under any circumstances,” Katopis said. “As you develop solutions and target help, it should be for those people who need it most and did not use their homes as ATMs.”

http://www.housingwire.com/news/san-bernardino-county-residents-push-back-against-eminent-domain

How Forgiveness Fits in Housing-Fix Toolkit

This article discusses several principal forgiving options being put forth that may help accelerate housing recovery nationally. What is your opinion? Should mortgage holders and investors forgive mortgage debt or not?

How Forgiveness Fits in Housing-Fix Toolkit

Policy makers are wrestling with a dilemma about the overhang of mortgage debt from the housing bust: to forgive or not to forgive?

With prices down by one-third from their 2006 peak, more than 11 million homeowners are underwater, or owe more than their homes are worth. That is about 24% of all homeowners with a mortgage, according to data firm CoreLogic.

The massive debt overhang—totaling almost $700 billion—is troubling not only because it leaves homeowners more exposed to foreclosure, which further erodes property values. It also weighs on the economy, making homeowners less likely to spruce up their properties and unable to tap equity to start businesses or pay for things like college tuition.

Housing demand also suffers. Without equity, young families are less likely to trade up to bigger places while empty-nesters may be unable to downsize. Perversely, in some of the hardest-hit markets, home prices appear to be stabilizing because there aren’t enough homes for sale—in part because so many homeowners are frozen in place.

Recent home-price gains will help a little. CoreLogic estimates that during the first quarter, about 700,000 borrowers climbed out of negative equity thanks to modest price appreciation. But in a handful of states, more than one-third of borrowers are still underwater.

That is reviving calls for policy makers to embrace principal forgiveness. One problem is deciding who deserves help and who doesn’t—and who will absorb the losses: taxpayers or mortgage investors. Often the two are the same because taxpayer-supported entities like Fannie Mae and Freddie Mac back about 60% of all mortgages.

Economists are split. “There’s no question that in many cases, [principal forgiveness] is the only way to assure people will stay in the house,” says Kenneth Rosen of the University of California, Berkeley.

Others say what really matters to borrowers is an affordable monthly payment. “If people have a huge debt burden but the mortgage is not the problem, why are we reducing the mortgage?” asks Thomas Lawler, an independent housing economist in Leesburg, Va.

Fannie and Freddie’s federal regulator has been wary of debt forgiveness, saying there are cheaper ways to help homeowners avoid foreclosure.

The Treasury Department tried to force the issue this year when it offered to pick up part of the tab for Fannie and Freddie if the government-supported mortgage giants adopted an existing federal program that subsidizes such write-downs for struggling borrowers. Economists estimate the firms could reach about 300,000 borrowers.

Cost isn’t the only issue. Trimming debt only for homeowners who are behind on their mortgage payments could lead other homeowners to default in hopes of getting a break—and could inflame those who believe it is unfair.

Another concern: Many borrowers who are underwater have second mortgages, which are primarily owned by banks, sitting behind the first mortgages that are primarily owned by Fannie, Freddie, and private investors. Writing down taxpayer-backed first mortgages without extinguishing bank-owned seconds is both politically dicey and an inversion of property rights. Is there a way to end this stalemate? Among the ideas offered by economists, private investors and government agencies:

First, Fannie and Freddie could cover closing costs for underwater borrowers who refinance into shorter-term loans with lower rates, a proposal the White House first put forward and that Sen. Jeff Merkley (D., Ore.) introduced in a bill earlier this year. Already, Fannie and Freddie have relaxed refinancing rules so that anyone with a loan backed by the firms can refinance, no matter how underwater, as long as they are current on payments. Accelerating amortization provides less of a break than principal reduction, but it nevertheless returns the borrower to terra firma much sooner.

Columbia University economists Glenn Hubbard, Christopher Mayer, James Witkin and mortgage-bond veteran Alan Boyce spelled out in a paper how this might work. A homeowner who owes 117% of his home’s value and who took out a 30-year loan with a 6.7% rate five years ago could refinance now into a 15-year loan with a 3.1% rate. That would increase the monthly payment by just $24. But it would leave the borrower with positive equity in less than three years, assuming home prices stay flat; within five years, the homeowner would have 17% equity. Doing nothing, the borrower would be underwater for more than seven years.

Second, mortgage investors could structure “earned” forgiveness programs that effectively pay deeply underwater borrowers to stay current on their mortgages. Loan Value Group, a Rumson, N.J.-based outfit, has designed such a program, called the “Responsible Homeowner Reward,” and is working with about 25,000 borrowers from a half-dozen mortgage firms.

The program works like this: Participating mortgage investors enroll borrowers who receive a small cash “reward” every month that they make their payments. The reward might grow to 10% of the loan balance, but it can be claimed only at some time in the future, usually when the borrower pays off the loan.

Finally, if Fannie and Freddie aren’t comfortable implementing a principal-writedown program of their own, they could ramp up sales of defaulted mortgages to investors who buy them at a discount, cut the loan balance, and make money by keeping the borrower in the house. The Federal Housing Administration this month said it would sell about 9,000 of those nonperforming mortgages later this year.

Other initiatives have run into a buzz saw of protest from mortgage investors, including a bid by the White House three years ago to allow judges to write down loans during bankruptcy proceedings. More recently, local governments in California have broached the idea of seizing mortgages through eminent domain and then restructuring them.

Principal reduction isn’t a panacea for the nation’s housing market. But in a handful of markets, the negative-equity problem will persist for many years. It makes sense for policy makers to at least experiment with how to speed along the clearing process.

http://online.wsj.com/article/SB10001424052702304373804577525212958043008.html

Chicago considers eminent domain to seize underwater mortgages

Another city considering using Eminent Domian – the largest city yet. Personally we think this is not a legal nor correct use of Eminent Domain processes and may in fact  cost more in the long run with possibly future legal proceedings. What is your opinion?

Chicago considers eminent domain to seize underwater mortgages

Using eminent domain to seize underwater — but performing — mortgages is no longer just a California concept. The Chicago City Council will hold a hearing soon to consider a similar program.   The City of Chicago will hold a hearing over using eminent domain to seize underwater mortgages.   The idea first came under consideration in San Bernardino County, Calif. Venture capital firm Mortgage Resolution Partners is pitching the idea to several cities across the country. Using investor dollars, local governments would seize performing mortgages in negative equity, reduce the principal for the borrower and refinance it into a government-backed loan.   Chicago Alderman Edward Burke, chairman of the city finance committee, scheduled the hearing this week. According to a city council document, Burke sees a chance the idea could clear legal hurdles.   “Legal experts have opined that government entities may use eminent domain to acquire mortgages so long as certain legal standards are met,” according to the document.   More than 44% of the homes in surrounding Cook County back are worth less than the mortgage. According to the city, local homeowners lost more than $37 billion in equity since the housing market crashed.   The San Bernardino proposal would affect less than 1.5% of private-label security loans in the area as the mortgages are bought out of pools. Investors are concerned, the idea would spread, with some arguing that the iniative may actually do more harm than good.   Mortgage bonds backed by jumbo loans – those presumed to be targeted by the program – could see losses rise more than 30% than already expected should a national eminent domain program be implemented, according to a recent report from Moody’s Investors Services.   On the other side of the idea, however, private investors looking into joining MRP expect returns as high as 30%, according to a recent article in The Wall Street Journal.   Isaac Boltansky, a policy analyst for Compass Point research, said it’s unlikely the eminent domain program will be scalable, but other areas will consider it.   “In the coming weeks and months we expect more municipalities to announce their intent to explore the use of eminent domain to seize underwater mortgages,” Boltansky said.   Burke invited city’s chief financial officer, the commissioner of the housing department and local representatives of the mortgage industry to the hearing.

http://www.housingwire.com/news/chicago-considers-eminent-domain-seize-underwater-mortgages

Mortgage servicers uneven on new HAMP uptake

Personally we think some investors continue to drag their feet. Also until Fannie Mae and Freddie Mac are allowed to participate, the numbers of people actually helped will continue to be lower than expected. What are your thoughts about the current status of HAMP?

Mortgage servicer uptake of the expanded Home Affordable Modification Program announced earlier this year is mixed, according to the Government Accountability Office. The Treasury Department relaxed debt-to-income requirements and said it would triple payments to investors who allow principal reduction under the program. Not all servicers were able to install the changes by the June 1 deadline, according to the GAO report, and the results so far varied. The GAO asked five different servicers how the changes would affect their modification count under HAMP but did not name the companies. One expected a 15% to an 18% increase in workouts because of the expanded DTI range. Modification trials and permanent conversions have been on the decline since 2010 as the pool of eligible borrowers shrank from an estimated 1.4 million in December 2010 to less than 900,000 at the end of last year.

Another servicer said half of its borrowers were not eligible for the program before the expansion. The Treasury required second liens and other obligations to be factored into the DTI ratio calculation. Previously, if a borrower’s first-lien mortgage monthly payment was below 31% of the income, the borrower was deemed ineligible. One servicer told the GAO about 15% of its investors in mortgages it services opted out of the principal reduction program when it was first launched in 2010, but the larger incentives enticed them to reconsider. The Federal Housing Finance Agency continues to examine the possibility for letting the country’s largest mortgage investors Fannie Mae and Freddie Mac to participate. The Treasury expects to spend roughly $9 billion of the anticipated $29.9 billion allocated for HAMP on principal reduction payments through 2017, according to the GAO. Roughly 6% of all HAMP permanent modifications include principal reduction as of April, up from 1% in May 2011, the GAO said. The GAO claimed the Treasury did not fully assess the risk of expanding HAMP, which the administration disputed in a letter to the agency. Timothy Massad, assistant secretary for financial stability at Treasury said in a letter to the GAO that although not every servicer met the deadline, all but one of the 18 largest servicers did manage to implement at least some aspects of the expanded program. “Given the currently low participation rates and the reasons for them, as well as the mixed expectations of the servicers we interviewed, it is not yet possible to determine whether the changes will significantly increase the number of troubled borrowers assisted under MHA,” the GAO said in its report. “Nevertheless, Treasury’s steps may further support the still-fragile housing market and help reduce the number of potential foreclosures.”

http://www.housingwire.com/news/servicers-uncertain-expanded-hamp-uptake