Eminent Domain and the Government Seizing Mortgages: The Game of Chicken Continues

Amir Sufi is a leading economist at the University of Chicago's Booth School of Business. In this piece for Bloomberg, he discusses the merits of allowing California cities such as Stockton and San Bernardino to seize mortgage contracts and reset the terms to forgive enough debt so that borrowers are no longer under water. If this threat to seize the mortgage is credible, then this will put tremendous pressure on lenders to renegotiate terms with borrowers.  Future borrowers will also pay an interest premium (especially those with high LTV and low fico score) once this precedent is in place.

The comments posted at the end of the piece are also worth reading.  This is a very important real estate policy topic.  The case for the "haircut" will continue to be debated.

 

 

Comments

[Zhang Guang]

(idzmj0720)Borrowers are no longer under water.
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[Rave]

The money is always "spent", in fact, to the point of being nationally in massive debt,

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[Marc]

Even though the government bailed out the banks and other huge corporations, and earlier savings and loans, it does nothing to help people who are the victims of the implemented policies. The overpriced real estate market was not created by the home buyers but by the greedy bankers who created packages of financial instrument in hopes of fast gains. Now, however, the burden is on an average citizen who is unable, especially with the enormous job losses, to pay his mortgage in a depressed market. No one seems to notice that the real unemployment numbers are manipulated in order not to show how bad the economy actually is. The numbers show only the new claim as opposed to all people who are receiving unemployment benefits or these who benefits are already exhausted but who still remain unemployed. The attempts at mortgage modifications where the number of years of the mortgage is extended up to 40 years does not really help the borrower who will end up paying much more in interest then on his original loan. Whether seizing mortgages by the government is going to help is yet to be seen but I personally think this is a viable solution.

[Marc]

Home mortgage business is in deep water and it seems that no one is going to pay attention to, or even attempt to solve this problem
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