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

washingtonpost.com

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

#71

Post by currymesurprise »

Lazare wrote: post #44

The reporting is frankly terrible. Let me put it in simple terms. An idea has been floating around for a while now that, in theory, you could use eminent domain to seize not just the houses, but the mortgages on the houses. Let's say that someone had borrowed $200k, but the house was now worth $100k. If you were a local government, you could seize the mortgage from the mortgage holder paying them compensation of, oh,…

Hi, thank you for your insightful comment. Can you provide a source for the sentence "The Federal government does (more than 90%, in point of fact), through the FHA."? I am unable to find any similar statistics. Thanks.

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

#72

Post by asdfologist »

mikeash wrote: post #66
thrownaway2424 wrote: post #62

Hacker News cognitive dissonance week: 1) Creating technical arguments against court-ordered search warrants: heroic civil disobedience. 2) Creating technical workarounds for mortgage debt paralysis: craven violation of sacred property rights.

Can you elaborate as to exactly why a person who does not have the same opinion on both 1 and 2 must be suffering from "cognitive dissonance"? I don't see much of a relation between them.

Because he's still offended by the massive downvotes on his illogical comments:

https://news.ycombinator.com/item?id=6485956

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

#73

Post by Lazare »

_delirium wrote: post #51
Lazare wrote: post #44

The reporting is frankly terrible. Let me put it in simple terms. An idea has been floating around for a while now that, in theory, you could use eminent domain to seize not just the houses, but the mortgages on the houses. Let's say that someone had borrowed $200k, but the house was now worth $100k. If you were a local government, you could seize the mortgage from the mortgage holder paying them compensation of, oh,…

I don't think the plan will work either (for many of the reasons you've given), but I'm not as sure about this one: The market value of a $200k mortgage for a $100k house is NOT $80k, or even $100k. Even if the mortgage is currently in default, it still represents ownership of a house worth $100k; by definition that makes it worth $100k, no $80k... The market value of the mortgage is whatever it would actually sell f…

> The market value of the mortgage is whatever it would actually sell for on the open market.

Yes. But as a practical matter, the market value of an underwater but performing loan is going to be significantly higher than the underlying asset, and most of the loans in the pool Richmond is looking at are performing.

A defaulted loan might be worth nothing more than the underlying asset less foreclosure costs (which can, as you note, be high); in some cases that might work out to be around 80% of the house value (which is what Richmond plans to offer), so in a small minority of cases Richmond's plan may pass constitutional muster. Unfortunately, their plan then relies on turning around and having the same home buyer get a new mortgage. I'll give you three guesses as to how easily a guy who just defaulted on his last mortgage will get a new one on the same house...

In short, yes, valuing mortgages is complicated. But they are liquid, traded investments, and the market price is simply higher than Richmond is offering on average. And the minority where it isn't won't work on its own.

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

#74

Post by Lazare »

derefr wrote: post #67
Lazare wrote: post #44

The reporting is frankly terrible. Let me put it in simple terms. An idea has been floating around for a while now that, in theory, you could use eminent domain to seize not just the houses, but the mortgages on the houses. Let's say that someone had borrowed $200k, but the house was now worth $100k. If you were a local government, you could seize the mortgage from the mortgage holder paying them compensation of, oh,…

> Which in context is basically the nuclear option; the value of a house which can't get a mortgage is pretty much $0. Wouldn't that mean that the cash-up-front price of the homes would go down until they became affordable? I'd like to buy a $0 house.

Whups. I misspoke; it will wreck the housing market and stop new building, but it will not drop the price of existing houses to $0. :)

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

#75

Post by mikeash »

asdfologist wrote: post #72
mikeash wrote: post #66

Earlier quoted context omitted.

Can you elaborate as to exactly why a person who does not have the same opinion on both 1 and 2 must be suffering from "cognitive dissonance"? I don't see much of a relation between them.

Because he's still offended by the massive downvotes on his illogical comments: https://news.ycombinator.com/item?id=6485956

Oh no, my precious internet points!

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

#76

Post by Lazare »

currymesurprise wrote: post #71
Lazare wrote: post #44

The reporting is frankly terrible. Let me put it in simple terms. An idea has been floating around for a while now that, in theory, you could use eminent domain to seize not just the houses, but the mortgages on the houses. Let's say that someone had borrowed $200k, but the house was now worth $100k. If you were a local government, you could seize the mortgage from the mortgage holder paying them compensation of, oh,…

Hi, thank you for your insightful comment. Can you provide a source for the sentence "The Federal government does (more than 90%, in point of fact), through the FHA."? I am unable to find any similar statistics. Thanks.

I don't have a link to hard data, but it's a widely reported fact.

> An estimated 90% of all mortgage issuance is government-related (either Fan/Fred or Ginnie). The government now bears 50% of the credit risk of the entire mortgage market. For all intents and purposes, the U.S. mortgage market is more or less nationalized.

(Source: http://marketrealist.com/2013/08/role-fannie-mae-freddie-mac...)

> Currently, the government backs about 90 percent of newly issued mortgages, more than ever before. The proportion fell in the years leading up to 2007 as subprime loans proliferated and then soared after that market collapsed. Since then, the Federal Housing Administration has expanded its role in backing home loans on the low end of the scale.

(Source: http://www.nytimes.com/2013/03/01/business/report-lays-out-p...)

> After all, more than 90% of all loan activity is underwritten, insured, or owned by the government and its affiliated entities.

(Source: http://www.forbes.com/sites/morganbrennan/2013/10/01/heres-h...)

And from 2010:

> Government-related entities backed 96.5% of all home loans during the first quarter, up from 90% in 2009, according to Inside Mortgage Finance.

(Source: http://online.wsj.com/article/SB1000142405274870409320457521...)

Any way you slice it, the government has a HUGE role in mortgage issuance in the US. And they have said:

> The federal housing agency, which regulates Fannie and Freddie, on Thursday made clear it doesn't intend to let this happen. The agency said it would instruct Fannie and Freddie to 'limit, restrict or cease business activities' in any jurisdiction using eminent domain to seize mortgages.

(Source: http://articles.latimes.com/2013/aug/08/business/la-fi-emine...)

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

#77

Post by zequel »

pron wrote: post #57
ams6110 wrote: post #49

Earlier quoted context omitted.

government is therefore not the taker of all things, but the giver of all things It is dangerous to view it literally this way. To think that government and/or society is giving you things, assumes that they owned them to begin with. Government owns your rights, and then "graciously" allow you to exercise them? No. Government exists to protect your rights. It's an important distinction. You rights to life, liberty, p…

Of course I used a little hyperbole. Still, property is not innate – it is a social construct. When agriculture started, society decided to allow people to own property. People need society, they don't need property (as they've lived without it for over a million years). Society therefore can define the limits of private possession. Obviously, we need to take into account that now, unlike 10,000 years ago, people no…

A bit of an aside, are you sure we lived without property for over a million years? Is there evidence property didn't exist? Has the idea been observed, between say, apes? I'll guess that, not codified, the idea has existed for a long time. Just a thought.

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

#78

Post by cynicalkane »

jbooth wrote: post #48
cynicalkane wrote: post #46

Earlier quoted context omitted.

The eminent domain plan simply lies about the value of a mortgage, saying it's worth less than not only best accounting practice but the market value required for their plan to work. Kelo doesn't apply because using a clearly unfair valuation in eminent domain is directly against the Constitution.

I don't disagree, but the definition of "clearly unfair" floats on the whims of Justice Kennedy.

Only a small fraction of constitutional disputes end in a 5-4 decision, and the ideological divides in those opinions are narrower than op-ed writers would have you believe.

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

#79

Post by thrownaway2424 »

asdfologist wrote: post #72
mikeash wrote: post #66

Earlier quoted context omitted.

Can you elaborate as to exactly why a person who does not have the same opinion on both 1 and 2 must be suffering from "cognitive dissonance"? I don't see much of a relation between them.

Because he's still offended by the massive downvotes on his illogical comments: https://news.ycombinator.com/item?id=6485956

Yes, because I personally give a shit about your stupid downvotes. I am devastated.
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