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
#2Good luck to anyone ever getting a mortgage in that town ever again.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#3If a mortgage is underwater and the debtor cannot (or will not) pay, then it hardly matters to the investors whether the owner is foreclosed on, or the city forces principal reduction. Either way, the investor takes a loss. But seizing current underwater mortgages would be terribly shortsighted.
What intrigued me is the idea that investors would be willing to accept a principal reduction, but cannot because the logistics are too difficult. FTA:
Although it was in the banks' interest to write down the principal on loans to avoid an outright default... ...so many different investors would have to sign off on the change. Because of that, these "private label securitized" loans are much more likely to default than the banks' portfolio loans.
So maybe a deal could be crafted that is in the interests of both investors and homeowners. Home buyers might get the short end, with fewer foreclosed homes coming on the market, but I've heard that banks tend to sit on foreclosed properties for a long time anyways, so it may not affect the market supply much.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#4Good luck to anyone ever getting a mortgage in that town ever again.
Moreover, the property values there will go even lower because of dried up financing.
This could become a textbook case of government power abuse backfiring at the people the politicians claim to be "helping"
There is a better description of what this city did: Theft
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#5They 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 elected officials far too much power.
Also why bother obtaining property and wealth when the Government positions itself as the taker of all things whenever it suits them best?
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#6If a mortgage is underwater and the debtor cannot (or will not) pay, then it hardly matters to the investors whether the owner is foreclosed on, or the city forces principal reduction. Either way, the investor takes a loss. But seizing current underwater mortgages would be terribly shortsighted. What intrigued me is the idea that investors would be willing to accept a principal reduction, but cannot because the logis…
"If a mortgage is underwater and the debtor cannot (or will not) pay, then it hardly matters to the investors whether the owner is foreclosed on, or the city forces principal reduction. Either way, the investor takes a loss."
Mortgage markets are not terribly liquid. The "market value" the City of Richmond picks may not be favorable to the investor. The extra-contractual origin of this market-value-by-fiat makes it doubly uncomfortable.
Further, collateral can improve in value. The housing market is presently appreciating. A defaulting debtor's prospects are less certain.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#7Richmond 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, to anyone in a low income neighbourhood, to dramatically re-price or freeze. It could also trigger a national housing credit, and price, pull-back.
Ironically either outcome will further impair Richmond property values, pushing more borrowers underwater and the city's tax income lower.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#8Good luck to anyone ever getting a mortgage in that town ever again.
Maybe.
But keep in mind that the world's best-regarded borrower is the German federal government, which has defaulted twice in the past century. Past returns do not predict future performance, as the prospectuses say.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#9They 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 as the taker of all things whenever it suits them best?
I agree. That's clearly not what is happening here, though.
For one thing, the people who have taken the mortgage out own at least some of the property, and secondly the banks that hold the mortgages are profiting form fraud (ie, the deliberate strategy of selling sub-prime mortgages to people who couldn't afford them). Finally, this isn't what suits [the government] best. It would suit the local government if the problem could be ignored, which is what other jurisdictions (including at the Federal level) are doing.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#10Good luck to anyone ever getting a mortgage in that town ever again.
Or maybe lending standards will increase (ie, you won't be able to get a loan unless you can prove you are going to be able to pay it off), and valuations will be more conservative.
Neither are exactly a bad thing.