CALIFORNIA - Using Eminent Domain to Solve Underwater Mortgage Crises

"Calif. City Contemplates Using Eminent Domain to Solve Its Foreclosure Crisis" PBS Newshour 9/19/2013

Excerpt

SUMMARY:  Half of all homeowners in Richmond, Calif., owe more on their property than what it is worth, prompting the city to consider using the power of eminent domain to seize underwater mortgages and help residents stay in their houses.  But detractors say that move will hurt the city by alienating Wall Street.  Hari Sreenivasan reports.

HARI SREENIVASAN (Newshour):  Jazz musician Morris LeGrande spends a lot of time jamming in the small recording studio in the back of his Richmond, California, home.  He and his wife Luajuana, both 57, were first-time homeowners when they bought their place in 2004 for $310,000.

Several years later, when the property was appraised at nearly half-a-million dollars, they refinanced and used the money to do some home repairs.

LUAJUANA LEGRANDE, homeowner:  This was on sale, actually.

HARI SREENIVASAN:  But the LeGrandes' dream of paying off their home one day was shattered in 2007, when the housing bubble burst, and like so many families across America, they found themselves underwater on their mortgage, owing more than their home was worth, much more.
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HARI SREENIVASAN:  Steven Gluckstern is the chairman of the San Francisco private investment firm Mortgage Resolution Partners, MRP.  He is the one who proposed the eminent domain plan to Richmond leaders, and he's now working closely with the city to implement it.

And here's an important point to understand:  Gluckstern and the city didn't just randomly pick 624 mortgages to buy.  They went after homes with a very specific, complicated loan, known as private label securitized mortgages.  Now, these are mortgages which have been sold from the original lending institution, bundled together with other loans in trusts, and then sold to private investors.   They are traded daily, so hundreds, possibly thousands of individuals have a financial stake in them.

Gluckstern says, unlike a traditional loan directly between a bank and a borrower, the complicated structure of PLS mortgages makes it very difficult for Richmond homeowners and homeowners around the country to know who they can actually negotiate with to reduce their loan.

PLS mortgages.... hmm.... sound familiar?  Like bundled Sub-Prime Loans that were a major cause of the 2008 crash ring a bell.  Remember, financial complexity is there to hide something.