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Richmond’s rules: Why one California town is keeping Wall Street up at night

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Re: Richmond’s rules: Why one California town is keeping Wall Street up at night

#11

Post by toomuchtodo »

JumpCrisscross wrote: post #7

Richmond has decided to tear up a private contract to one side's advantage based on no pre-existing law. This is, generally, contrary to the principles of rule of law. The upside will be a short-term bump in Richmond's residents' balance sheets. Courts are likely to strike this down. This will trash Richmond's public balance sheet. If courts allow this one would eventually expect private sector credit availability, t…

You're right. You know what would be easier? For all of Richmond to default on their mortgages.

Sidetrack: I put $50K into a townhouse in 2007 (my mistake!). I lost it all when the real estate market flopped. I walked away from the property because I wasn't willing to work for several years just to pay the principle down.

End result: No matter what, the real estate lost value. Either write it down now, or enjoy the pain as you write it off later (ie "extend and pretend": http://www.americanbanker.com/bankthink/megabanks-extend-and...).

What's that? Default judgement? Oh no. Bankruptcy. I still get to keep $1MM plus in retirement accounts, and I just can't buy another house for ~7 years. How horrible.

Re: Richmond’s rules: Why one California town is keeping Wall Street up at night

#12

Post by JumpCrisscross »

nl wrote: post #9
josephagoss wrote: post #5

They say using Eminent domain as if thats the solution, take the banks property away. I am thinking the fallout from this move will be disastrous. These are the ideas that fundamentally change the fabric of a society. Now the Government will use Eminent domain whenever a private entity is acting against the social interests of the citizens, whilst many will applaud such a move I fear it gives the Government and elect…

Now the Government will use Eminent domain whenever a private entity is acting against the social interests of the citizens, whilst many will applaud such a move I fear it gives the Government and elected officials far too much power. Isn't the purpose of government to protect its citizens when a more powerful entity acts against them? Also why bother obtaining property and wealth when the Government positions itself…

"the people who have taken the mortgage out own at least some of the property"

By definition of being underwater they own no equity of value. When a company goes bankrupt, i.e. when a company's equity value hits zero, i.e. when a company's assets are worth less than its liabilities, shareholders are wiped out. At that point they have no residual claim to the assets.

Re: Richmond’s rules: Why one California town is keeping Wall Street up at night

#13

Post by toomuchtodo »

ars wrote: post #2

Good luck to anyone ever getting a mortgage in that town ever again.

If you were foreclosed on over a year ago, and were able to prove it was due to economic hardship, you can get an FHA loan.

Disclaimer: Both my parents work in the mortgage underwriting business, one of them forcing BoA/Chase/Wells to take back th loans they made during the boom times.

EDIT: I'm a sport, here's a citation: http://www.calculatedriskblog.com/2013/09/wsj-fha-cuts-waiti...

http://online.wsj.com/article/SB1000142412788732398060457903...

Re: Richmond’s rules: Why one California town is keeping Wall Street up at night

#15

Post by JumpCrisscross »

toomuchtodo wrote: post #11
JumpCrisscross wrote: post #7

Richmond has decided to tear up a private contract to one side's advantage based on no pre-existing law. This is, generally, contrary to the principles of rule of law. The upside will be a short-term bump in Richmond's residents' balance sheets. Courts are likely to strike this down. This will trash Richmond's public balance sheet. If courts allow this one would eventually expect private sector credit availability, t…

You're right. You know what would be easier? For all of Richmond to default on their mortgages. Sidetrack: I put $50K into a townhouse in 2007 (my mistake!). I lost it all when the real estate market flopped. I walked away from the property because I wasn't willing to work for several years just to pay the principle down. End result: No matter what, the real estate lost value. Either write it down now, or enjoy the p…

Couldn't agree more - default is the proper way to do this. Others include Richmond (a) buying underwater mortgages off investors and tearing them up or (b) making mortgage payments for its residents (an ersatz bail-out to investors).

Re: Richmond’s rules: Why one California town is keeping Wall Street up at night

#16

Post by toomuchtodo »

JumpCrisscross wrote: post #15
toomuchtodo wrote: post #11

Earlier quoted context omitted.

You're right. You know what would be easier? For all of Richmond to default on their mortgages. Sidetrack: I put $50K into a townhouse in 2007 (my mistake!). I lost it all when the real estate market flopped. I walked away from the property because I wasn't willing to work for several years just to pay the principle down. End result: No matter what, the real estate lost value. Either write it down now, or enjoy the p…

Couldn't agree more - default is the proper way to do this. Others include Richmond (a) buying underwater mortgages off investors and tearing them up or (b) making mortgage payments for its residents (an ersatz bail-out to investors).

Agree. But! You're going to need to find a way to untangle which investor owns which mortgage (these are derivatives after all). I'd say you get 90 days as an investor to respond; after that, the city gets to take unilateral action.

Re: Richmond’s rules: Why one California town is keeping Wall Street up at night

#17

Post by JumpCrisscross »

toomuchtodo wrote: post #16
JumpCrisscross wrote: post #15

Earlier quoted context omitted.

Couldn't agree more - default is the proper way to do this. Others include Richmond (a) buying underwater mortgages off investors and tearing them up or (b) making mortgage payments for its residents (an ersatz bail-out to investors).

Agree. But! You're going to need to find a way to untangle which investor owns which mortgage (these are derivatives after all). I'd say you get 90 days as an investor to respond; after that, the city gets to take unilateral action.

"But! You're going to need to find a way to untangle which investor owns which mortgage (these are derivatives after all)."

Mortgages are not derivatives, they are debts. Tracing the owner of a mortgage should not be challenging. In the event that it is, that becomes the mortgage servicer's fault, an issue between the investor and the servicer.

Re: Richmond’s rules: Why one California town is keeping Wall Street up at night

#18

Post by tomohawk »

The US constitution says:

"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."

Re: Richmond’s rules: Why one California town is keeping Wall Street up at night

#19

Post by nl »

JumpCrisscross wrote: post #12
nl wrote: post #9

Earlier quoted context omitted.

Now the Government will use Eminent domain whenever a private entity is acting against the social interests of the citizens, whilst many will applaud such a move I fear it gives the Government and elected officials far too much power. Isn't the purpose of government to protect its citizens when a more powerful entity acts against them? Also why bother obtaining property and wealth when the Government positions itself…

" the people who have taken the mortgage out own at least some of the property " By definition of being underwater they own no equity of value. When a company goes bankrupt, i.e. when a company's equity value hits zero, i.e. when a company's assets are worth less than its liabilities, shareholders are wiped out. At that point they have no residual claim to the assets.

Yeah, but that's an outcome of the way US mortgage system works (ie, the mortgage holder is preferred over other equity holders).

It doesn't have to be this way; for example in the event of a liquidation all parties with an equity interest could have money distributed to them in proportion to the interest the hold.

Re: Richmond’s rules: Why one California town is keeping Wall Street up at night

#20

Post by josephagoss »

nl wrote: post #9
josephagoss wrote: post #5

They say using Eminent domain as if thats the solution, take the banks property away. I am thinking the fallout from this move will be disastrous. These are the ideas that fundamentally change the fabric of a society. Now the Government will use Eminent domain whenever a private entity is acting against the social interests of the citizens, whilst many will applaud such a move I fear it gives the Government and elect…

Now the Government will use Eminent domain whenever a private entity is acting against the social interests of the citizens, whilst many will applaud such a move I fear it gives the Government and elected officials far too much power. Isn't the purpose of government to protect its citizens when a more powerful entity acts against them? Also why bother obtaining property and wealth when the Government positions itself…

I actually agree with your last point, but the correct course of action would be for the Government to sue the banks based on this fraud. Using Eminent domain is the nuclear option.

I'd rather see a court where the banks are ripped apart for their crimes, but for some reason this never happened.

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