Robert Hocket, a supporter of this idiotic idea, stated last week that 20-25 municipalities in approximately 11 states (including CA, NJ, WA, OH, NY, and FL) are looking into using eminent domain to seize and rework mortgages.
He also recently wrote a paper about the idea, ironically titled "Paying Paul and Robbing No One", that a muncipality can simply force a lender (the MBS trust in this case) to accept less than the face value of a loan, and then give the borrower a break on the balance. The theory being that because the borrower is underwater, he deserves a break - while in the real world, most of us would ask him to post additional collateral if we were the lender.
Richmond CA, the first mover, has already sent offer letters to buy loans to Trustees and Servicers. A Federal judge ruled that the second suit surrounding this particular city's effort is too early to call. The Trustees' suit highlights that the purported goal of MRP is to make the loans more affordable, but modifying into current rates would actually force payments 19% higher, therefore making them MORE likely to default. Of the 624 mortgages MRP has offered to buy, the vast majority are CURRENT on their payments, 63% were originally cash-out refis, 53% have already received modifications (average payment is $1499 and average WAC is 3.05%), and losses to the MBS Trusts that Fannie Mae owns would total $17mm.
The best quote so far is from the mayor of Richmond CA, Gayle McLaughlin, who said “We are offering to take the loans for fair market value and that’s what this is all about. To threaten redlining to our community, when they have already suffered clearly massive injustices, it’s just setting us
back.” She is offended that lenders have basically said we won't lend in your city anymore (i.e. redlining) if you don't honor lending contracts in your city anymore... mmmmkay.
*most of this is taken from a few BBG articles, except where stated otherwise. Sorry no links.
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