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"Eminent Domain" (called "Appropriation" in some U.S. States), which is the seizure of property by the Government for a variety of different reasons, has always been a hotly contested topic. This is particularly important to the Real Estate market, in light of all of the underwater mortgages (mortgage outstanding is higher than the actual value of the home).
Once of the hardest hit states has been California.
"California, once ground zero of the housing crisis, is and will continue working its way back to a stable real estate finance market.", writes David H. Stevens, in a recent article titled, "Property seizure is not the answer". Stevens, who is the President and CEO of the Mortgage Bankers Association, which is based in Washington, D.C.), uses the term, "radical", in referring to the use of eminent domain to take over underwater mortgages.
Stevens cautions that the "property seizure program", which permits local governments to use their "eminent domain power to "condemn" underwater mortgages", presents a "spiraling effect of withdrawal of mortgage credit, declining home values and a threat to local economic recovery." What happens is that the actual lenders are paid the current market value, but then the mortgage is repackaged for investors to purchase at the lower value, explains Stevens.
Some other fallout from the use of Eminent Domain, per Stevens, would be an increase in uncertainty, as well as a decrease in available credit and thus, a large impact on the real estate finance market, leading to decreasing home values, and ultimately, retirement savings. As Stevens writes, "many people, whether they know it or not, have retirement accounts that are invested in the same mortgage-backed securities. In other words, anyone with some form of retirement savings is likely invested in mortgage bonds that this proposal could devalue."
The irony in all of this is summed up by Stevens, when he says that the "fear of government action will likely prevent homes from being purchased and halt any chance of economic recovery". He says that once the government begins "condemning and seizing mortgages", the investors, he says, who we depend on to buy mortgages, "Will likely believe that any mortgage can be interfered with and therefore the risk of loss to them will be too great to allow any loans to come from this affected market area."
So what is the right way forward?
The "policymakers should look to homebuyers of the future", says Stevens, who says that we need to do all that we can "to protect families wishing to stay in their homes during periods of economic uncertainty without harming the future of the same community to recover for the long term." He suggests that these policymakers "must consider any consequences to quick-fixes in the real estate market financial system".
What will help us? Stevens lists a few items, such as eliminating uncertainty, reducing foreclosure backlogs, and in my opinion, one of his strongest proposals: "creating an environment for private capitol to reenter the market, and allowing access to credit for qualified homeowners", which is the fuel that is required in the tank to drive us to stability and further growth.
Stevens aptly admits, "there is no silver bullet to recovery in the real estate finance markets". Do you agree with him? What other changes need to be implemented? What are your feelings on Eminent Domain. We'd like to know!
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TAGS: #RealEstateFinance EminentDomain #underwatermortgage #housingcrisis #propertyseizure #retirementsavings #foreclosurebacklog #homevalues #mortgagecredit #housingcrisis