Idea, “So Crazy, It Just Might Work!”

Life, Liberty, And The Pursuit of A Lower Payment
Just as I was pasting pics of a new Charleston style listing on Lincoln St. (killer kitchen, btw) @ Elmwood Park, I clicked over to Facebook to see what was going on.  While scrolling I found the diddy below, and thought it was interesting enough to start my post over.
Here’s the quick of it:   If you’re “under water,” the government could take the property per the power of eminent domain, sell it off to big cats for a lower number than what the owner bought it for, whereby they would refi the homeowner.  Bang, there ya go.
You remember “eminent domain.”  It’s the right of the government to take some or all of your property for the public greater good, with “due” compensation, without your consent.
Why could this possibly be a good idea, you ask?  It skips the steps of the expensive process needed for lenders to foreclose, and the legal red tape that comes with it, and allows folks to remain in their homes at a lower payment.   Simply put, it takes the law of, “We can do this, because we just can” from a level of highways, train routes, or economic development, to a financial tool for homeowners, lenders, and cities.  Win/Win/Win?   Hmm….
My purist Capitalist and Libertarian friends will kick this off as as the dumbest thing ever.  Staying true to their core, I can’t blame them.  After all, homeowners shouldn’t cry, “U.S. Government, pleeeeze take my land.”  Somehow this just doesn’t seem like the coveted American way, at all.  Personally, I worry of the precedent that could be set and a potentially dangerous slippery slope.
I’m not sure if it’s a good idea or not.   Good or bad, it’s an idea, and if you know me I’m a big fan of ideas.
Perhaps they should try a pilot program in San Bernandino, or Detroit, and see how things shake out.  

For the record, on the surface the idea sounds like a goodie for upside down homeowners.  However, when I back up a few frames and go big picture, it feels like a potential disaster and a new national attitude in the making.


“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.”

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