Eminent domain mass delusion hits San Berdoo

July 16, 2012

by Wayne Lusvardi

A few hundred years ago there was the famous Dutch Tulip Mania of 1637. It was followed by the South Sea Bubble of 1711 and the Mississippi Company Bubble of 1719.

In modern times, there was the California Energy Crisis of 2000-01, with its energy bubble caused by government price caps. Then there was the U.S. sub-prime Mortgage Bubble of 2003 to 2006, centered in California.

Now there is the mania of the San Bernardino County Joint Powers Authority to seize “underwater mortgages” on homes through the use of eminent domain.

The county’s proposal calls for a joint public-private partnership to be formed with a private mortgage company to reduce the amount owed on “underwater mortgages.”  Underwater mortgages are where the amount owed on a home loan is way more than the current market value of the home.

All the loan reductions would be rolled into a municipal bond to spread the cost of over-mortgaged properties to all property owners in the county on their property tax bill.  It is assumed that losses could be socialized; but gains in property value would still be allowed to private property owners.

Hope and mass delusion spring eternal when people are economically desperate. And San Bernardino homeowners with “underwater mortgages” are understandably desperate and prone to being misled by loan sharks. Only in this case the government is inviting the loan sharks into San Bernardino County, just as they did with the sub-prime Mortgage Bubble.

A Homeowner ‘Steering’ Committee

Homeowners are apparently being misled by the news that the county plans to use eminent domain to reduce the loans on their over-mortgaged properties. They have now formed the San Bernardino Homeownership Protection Program to steer San Bernardino County to rescue their over-mortgaged properties and not to have those mortgages picked by some other process.

David John of the Heritage Foundation reports that, at most, only about 20,000 to 30,000, of the 150,000 underwater mortgages would be considered for the proposed loan write down program. For the higher figure, that’s about 20 percent.  As we can already see the selection of who gets such loan reductions would be prone to being politicized.  Will loan reductions be “blue-lined,” just as mortgages were purportedly once denied to minority neighborhoods by “redlining?” 

How Homeowners Are Misled

Here is how Kathleen Pender, the personal finance and investing columnist for the San Francisco Chronicle, understands such a loan-reduction program would work:

“Suppose a homeowner owes $300,000 on a home now worth $200,000. The city seizes the loan and pays the current mortgage holders $170,000. This price assumes a large number of severely underwater homeowners will ultimately default. The city, which now owns the loan, writes down the balance to $190,000. Now instead of being underwater, the borrower has $10,000 in equity. He gets a new loan for $190,000, which pays off the $170,000, with $20,000 left over for the city to share with its investors and pay expenses.” 

Pender’s above example is mistaken, however.  Homeowners would not be allowed $20,000 in “equity” or price appreciation upon re-sale of their home. Government can socialize losses, but they cannot privatize gains.  A knowledgeable person like Pender is even misinformed as to how this program would work.  When even the experts are misled, it is no surprise that homeowners are deluded that there is some magic wand that government could wave to get rid of the excess mortgages on their properties and allow them to reap a small profit.

Profit on Loan Reductions Forbidden

I previously worked for a public housing authority and did many loan write-downs for low-income and affordable housing programs.  The standard practice was to require homeowners to agree in writing to give up any future value appreciation in their home as a condition for receiving a loan subsidy. This is also how the popular semi-private homeownership program called Habitat for Humanity works. Kurt Eggert, professor of law at Chapman University, has additionally said that homeowners would be forbidden from making a profit on any loan reductions for properties in foreclosure or with underwater mortgages.

The U.S. Subprime Home Loan Bubble of 2003 to 2007

We’re still suffering from the collapse of the mid-2000s subprime home loan bubble and resulting bank panic. The bubble was created by government to compensate for a huge loss of jobs resulting from a relative demographic decline of intact families to take out enough home and small business loans to support pensions and Medicare for the elderly.

Government policy “mandated” that renters take out sub-prime loans and become homeowners to prop up pensions and government medical care.  Obamacare is just another form of such a “mandate” to prop up pension and medical subsidies, only now it is called a “tax” because of the July 28 U.S. Supreme Court Ruling. This demographic imbalance is the same problem that has caused the economies of Greece, Spain and other European countries to collapse.

Bubbles, manias and Benito

San Bernardino has falsely promised homeowners with underwater mortgages that they can have their cake and eat it too; that they can reduce the over-mortgaged loans on their now deflated home values and can have some small amount of equity and future home price appreciation at the same time.

Even if implemented, such a loan reduction program would lead to yet another false bubble economy and crash.  Government cannot load the over-mortgaged portion of everyone’s home loan in California into a hidden premium in energy or water rates, as it has with Green Power to pay for smog reduction.

California has ended up with a man-made permanent water drought as an unintended consequence of cleaning up smog from urban air basins by loading the cost in inflated water rates.  San Bernardino County will unintentionally end up with permanent economic drought and stagnation if it should be able to figure out a way to legally justify the socializing of over-mortgaged properties by eminent domain.

Lenders would avoid making home loans in San Bernardino. And the bond market would be afraid to invest in San Bernardino for fear that bonds would be confiscated by government via eminent domain.  A system of gambling in home loan derivatives would be introduced to the San Bernardino real estate market, just as California allowed casinos on Indian Tribe lands in the Inland Empire.

California would more resemble Mussolini’s fascist Italy, in which business and government colluded, than it would a free market economy.  The home loan market in San Bernardino would be stigmatized as the first in the U.S. with socialized mortgages.

27 comments

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  1. Ulysses Uhaul
    Ulysses Uhaul 16 July, 2012, 12:16

    Dead subject. A commie fantasy!

    Gum away on RAGWUS!!!!

    Reply this comment
  2. Scott V. Brown
    Scott V. Brown 16 July, 2012, 13:50

    SOLUTION TO THE FORECLOSURE CRISIS
    A Workforce Housing Program which has been around for more than 30 years and actively utilized in the ski resorts and many major cities could simply be applied to resolve the foreclosure crisis.

    The plan would be to offer an opportunity to all homeowners to participate in launching a National Workforce Housing Program by placing a “Deed Restriction” on their home (must live in the home, own no other home and work for a living) with a 3% yearly cap rate for sale purposes. The home would be reappraised at the new value (30% to 50% less than a similar free-market home). The mortgage would be rewritten and payments adjusted to the new appraised value.

    It would not be a “give-away” or a “bail-out” since the participants would buy-in to the program by forfeiting the “free-market” appreciation value of their home and by also participating in launching a National Workforce Housing Program, which is much needed, plus there would be no negative stigma on participants since they paid to participate.

    The home would remain affordable to workforce people and families forever due to the restricted appreciation and sale price (3% compounded yearly).

    It would not encourage homeowners who own a home they can afford to jump in on a “give-away” or “bail-out” they don’t need, but would reward them by solving the foreclosure problem in their neighborhoods and cities and allowing their home to start appreciating again and allow the economy to repair it self.

    The Plan could also be offered to bank owned and developer owned homes, which would also help the housing industry by doing away with the over-supply of homes for sale in our country which is a major problem.

    It would also create and opportunity for renters and 1st time homebuyers to purchase a home at an affordable price which is also much needed and deserved.

    This is a once in a life-time opportunity to create a national workforce housing program at a fraction of the cost of a piece-meal price while solving the foreclosure crisis and the homes would be scattered throughout communities instead of concentrated in projects.

    It is a solution to the foreclosure crisis and one that we already understand, and know how to run and implement not one we made up for the crisis.

    Families would be able to keep their homes and homes would once again become a home like in the not so long ago times of our grandparents who burned the mortgage as soon as they could and never borrowed against their home again. Scott Brown

    Reply this comment
  3. Rex The Wonder Dog!
    Rex The Wonder Dog! 16 July, 2012, 15:24

    I love the pics you all post with the articles, really makes my day….the Hitler salute is hilarious.

    Reply this comment
  4. JLSeagull
    JLSeagull 16 July, 2012, 15:53

    “All the loan reductions would be rolled into a municipal bond to spread the cost of over-mortgaged properties to all property owners in the county on their property tax bill.”

    Wouldn’t that mean that a similar tax amount would be added to the new mortgages of the reduced loan recipients?

    Reply this comment
  5. Ulysses Uhaul
    Ulysses Uhaul 16 July, 2012, 16:02

    What a flaming crock!

    Do not burn your brain on this garbage.

    Reply this comment
  6. Wayne Lusvardi
    Wayne Lusvardi 16 July, 2012, 16:38

    To JL Seagull
    No. A similar amount would and could not be added to the new mortgages of new buyers.
    What would be added is a small percentage on the new buyer’s property tax rate.

    The County wants to reduce mortgages for about 30,000 homeowners
    According to newspaper reports the average amount of loan reduction needed is $200,000 per loan
    30,000 homeowners with overmortgaged loans multiplied by $200,000 per loan = $6 billion

    $6 billion divided by 699,637 housing units in San Bernardino County (from U.S. Census) = $8,525 per unit
    So a tax obligation of $8,525 would be added to each housing unit in the county to be paid back in added property tax payments over say 25 years.

    Reply this comment
  7. Rex The Wonder Dog!
    Rex The Wonder Dog! 16 July, 2012, 16:57

    CalTURDS 2012 Return= 1%!!!!!!!!!!!!!!!!!!!!!!!!!!

    The sky just fell!….. On Teddy,…… Teddy died today with CalTURDS!

    Reply this comment
  8. Donkey
    Donkey 16 July, 2012, 17:56

    That’s Mussolini Rex, just sayin buddy, in hte interests of keeping it real. 🙂

    Reply this comment
  9. BobA in San Diego
    BobA in San Diego 16 July, 2012, 18:06

    Wayne:

    That seems inherently unfair. I buy a new home in San Bernardino and I’m forced to subsidize the mortgages of preexisting home owners because they couldn’t afford their mortgages?

    I have a prediction: San Bernardino wil either turn many of those homes into section 8 housing just to keep the occupied or bulldoze them altogether. That might not be such a bad idea (wink wink)!!

    Who in their right mind would want to buy a home there if this plan goes forward? I’ll bet banks and other lending institutions won’t be making home loans in San Bernardino county. The county will have to buy homes and go into the mortgage business and thus create another government bureaucracy that will further drain their coffers.

    Reply this comment
  10. Ian Random
    Ian Random 16 July, 2012, 18:58

    So let me get this right. If you owe more than your house is worth, that’s bad. If you owe more than your car is worth, that’s okay.

    Reply this comment
  11. Ulysses Uhaul
    Ulysses Uhaul 16 July, 2012, 23:37

    Are you people grown and sane?

    A free and clear cabin owner has to pay about nine grand for others who do not honor their mortgage contracts…..

    Reply this comment
  12. Rex The Wonder Dog!
    Rex The Wonder Dog! 17 July, 2012, 00:44

    1%%%%%%%%%%%%%%%%%%%%%%%%%% Teddy!!!!!!!!!!!!!!!!!!!!!!!!!

    Reply this comment
  13. BobA in San Diego
    BobA in San Diego 17 July, 2012, 07:09

    Rex:

    If you don’t mind me saying, these are serious issues under discussion here.
    Brevity is the soul of wit but have something witty to say that’s germane to the issue.

    Reply this comment
  14. Ulysses Uhaul
    Ulysses Uhaul 17 July, 2012, 07:59

    Bob. Relax.

    You do not run this insane bunker.

    Levity is good. Calif is over. Accept it. Eloquence and grim posts will get shots. Get used to it.

    Reply this comment
  15. Dyspeptic
    Dyspeptic 17 July, 2012, 08:06

    @ BobA, please don’t use big words like “brevity” and “germane”, especially in complete sentences. Some of the commentators here have trouble comprehending adult language and concepts. I think U haul know who they are. 🙂

    “CalTURDS 2012 Return= 1%!!!!!!!!!!!!!!!!!!!!!!!!!! The sky just fell!….. On Teddy,…… Teddy died today with CalTURDS!” Thanks Rex, you just made my day….. and ruined Teddy, Queegy and Uhauls!

    Reply this comment
  16. Dyspeptic
    Dyspeptic 17 July, 2012, 08:22

    Wayne, good article but pretty scarey. Here is a question for you. Why couldn’t the San Berdoo County Gauleiters seize ALL mortgages under eminent domain and then borrow against the equity in the healthy properties and use the proceeds to pay down the underwater ones, with the new private mortgage lender getting a crony capitalist cut? I’m not recommending this, just trying to understand the various forms of insanity that could happen.

    Reply this comment
  17. BobA in San Diego
    BobA in San Diego 17 July, 2012, 09:07

    Ulysses Uhaul:

    Yes, it’s almost over but why be so cavalier about it? If the gub’mint tells me to bend over and prepare to be “serviced”, I sure as hell ain’t gonna laugh & smile about it and bend over willingly.

    I’m a fighter and I prefer the company of those who are willing to fight along side me. California is worth saving and I refuse to laugh and joke or remain silent while those bastards in Sacramento ruin this state and screw everyone in it in the process.

    Reply this comment
  18. Ulysses Uhaul
    Ulysses Uhaul 17 July, 2012, 09:10

    Why do deep bunker gloomers call diversity posters bad names?

    Without our help this site would be so radical/paranoid……scary!!!! Really scary!!!

    Reply this comment
  19. Rex the Wonder Dog!
    Rex the Wonder Dog! 17 July, 2012, 09:40

    1%%%%%%%%%%%%%%%% baby!

    Teddy just died, the sky just fell on him 🙂

    Reply this comment
  20. BobA in San Diego
    BobA in San Diego 17 July, 2012, 11:22

    Dyspeptic:

    I here what your saying but I can’t and won’t lower my IQ or command of the English language just to engage some folks on their level. Perhaps it is they who should move over to the PeeWee Herman or the Sesame Street forum and engage like-minded people there.

    Reply this comment
  21. Dyspeptic
    Dyspeptic 17 July, 2012, 12:43

    Chill out BobA, I was just havin’ some fun. We are simpatico on the IQ and language use. Besides, PeeWee Herman is an intellectual giant compared to U know who.

    Reply this comment
  22. Dyspeptic
    Dyspeptic 17 July, 2012, 12:46

    Hey Rex, what ever happened to Teddy and Queegy anyway. Maybe someones psych. meds. are finally kicking in and the mulitiple personality disorder is getting better.

    Reply this comment
  23. BobA in San Diego
    BobA in San Diego 17 July, 2012, 14:33

    Dyspeptic:

    Yeah, I know. I was just having one of my Dr. Thomas Sowell moments there.
    To bad we can’t run PeeWee Herman against that yapping Chihuahua Barbara Boxer
    or DiFi (Diane “FineSwine” as we call her in these parts).

    Reply this comment
  24. Ulysses Uhaul
    Ulysses Uhaul 17 July, 2012, 16:00

    More physical features slurs….is this Blackboard Jungle!

    Reply this comment
  25. Rex the Wonder Dog!
    Rex the Wonder Dog! 17 July, 2012, 16:00

    I hope Teddy has abandoned his sock puppets!

    Reply this comment
  26. Cratic
    Cratic 17 July, 2012, 20:38

    Great article but would love to know where he got the information on govt causing bubbles to make up for changes in demographics…

    Reply this comment
  27. Ulysses Uhaul
    Ulysses Uhaul 18 July, 2012, 07:30

    You are serious? Nothing posted make any sense to anyone anytime anyhow….always believe Teddy and Ulysses the voices that turn heads!

    Reply this comment

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