Comments on: Why the eminent-domain plan doesn’t hurt second liens http://blogs.reuters.com/felix-salmon/2012/07/11/why-the-eminent-domain-plan-doesnt-hurt-second-liens/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Eugene5000 http://blogs.reuters.com/felix-salmon/2012/07/11/why-the-eminent-domain-plan-doesnt-hurt-second-liens/comment-page-1/#comment-41738 Thu, 12 Jul 2012 20:46:18 +0000 http://blogs.reuters.com/felix-salmon/?p=15966#comment-41738 For a congressperson who is “arguably the most sophisticated and well-informed member of the House when it comes to housing finance issues”, Brad Miller seems more of an illiterate, based on the points raised in Felix’s article just for starters.

The obvious problem with the eminent domain approach for acquiring mortgages is that a mortgage is in no way “property”. Eminent Domain doesn’t even apply.

Miller’s article draws a ludicrous comparison between mortgages and intangible/intellectual property. The word “use” in the Fifth Amendment applies rationally to the latter, but not the former:

A mortgage is not “used” in any reasonable sense of that word. The government may acquire real property and build a bridge on it – that is “use”. The government can’t “use” a mortgage in anything approaching the same sense as the word applies to tangible property. Even in routine financial dealings, one company doesn’t “buy” a mortgage in the same sense that one “buys” a banana – buying a mortgage is merely a reassignment of the right to collect on the loan and to foreclose on the underlying backing property.

2) Intangible property such as a patent does fit the “use” notion, but the US government doesn’t buy patents. Miller states “Existing law allows the use of eminent domain to buy any kind of property, however, including even intangible property like trade secrets”, a reference to “Ruckelshaus v. Monsanto”. Again, even in this grayest of gray areas, those trade secrets (data about pesticides) were intended to be “used”, unlike the mortgages.

The city of San Bernardino’s problems can only be solved by:

1) Reversing the last 50 years of housing madness.
2) First mortgage holders reneging on their loans – aka, “jingle mail”.
3) Not paying their employees so damn much. Unionized government employees in California make twice the comparable wages in flyover island.

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By: MrRFox http://blogs.reuters.com/felix-salmon/2012/07/11/why-the-eminent-domain-plan-doesnt-hurt-second-liens/comment-page-1/#comment-41733 Thu, 12 Jul 2012 19:27:57 +0000 http://blogs.reuters.com/felix-salmon/?p=15966#comment-41733 Yes, TFF, we should keep thing formal until the new site is in place, at which time my pink unicorn Brony Av and smileys in every variety will usher in a new era on the Felix blog.

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By: TFF http://blogs.reuters.com/felix-salmon/2012/07/11/why-the-eminent-domain-plan-doesnt-hurt-second-liens/comment-page-1/#comment-41729 Thu, 12 Jul 2012 18:43:51 +0000 http://blogs.reuters.com/felix-salmon/?p=15966#comment-41729 Apologies, MrRFox, I had thought you were arguing that we SHOULD force the banks to write down their mortgages, then use that as a justification to forcibly recapitalize them on terms favorable to the Treasury.

And I do agree that most banks couldn’t withstand that treatment, even if we disagree on a couple of the better-capitalized ones.

I will strive to keep my comments STRICTLY serious, eschewing emoticons (which happily don’t translate into little yellow faces in this forum).

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By: MrRFox http://blogs.reuters.com/felix-salmon/2012/07/11/why-the-eminent-domain-plan-doesnt-hurt-second-liens/comment-page-1/#comment-41723 Thu, 12 Jul 2012 16:23:16 +0000 http://blogs.reuters.com/felix-salmon/?p=15966#comment-41723 But Ken – you wouldn’t get to see my new Brony-Pony Av then!

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2012/07/11/why-the-eminent-domain-plan-doesnt-hurt-second-liens/comment-page-1/#comment-41721 Thu, 12 Jul 2012 15:38:12 +0000 http://blogs.reuters.com/felix-salmon/?p=15966#comment-41721 MrFox, I don’t care if they have emoticons or not, as long as they don’t require a facebook account to post comments. That would suck. But on the bright side, I would spend less time posting comments. as in none.

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By: MrRFox http://blogs.reuters.com/felix-salmon/2012/07/11/why-the-eminent-domain-plan-doesnt-hurt-second-liens/comment-page-1/#comment-41714 Thu, 12 Jul 2012 14:46:23 +0000 http://blogs.reuters.com/felix-salmon/?p=15966#comment-41714 @TFF – I wonder if the new Reuters’ website is going to have emoticons for us to play with. What do you think?

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By: MrRFox http://blogs.reuters.com/felix-salmon/2012/07/11/why-the-eminent-domain-plan-doesnt-hurt-second-liens/comment-page-1/#comment-41713 Thu, 12 Jul 2012 14:38:38 +0000 http://blogs.reuters.com/felix-salmon/?p=15966#comment-41713 “Weren’t you arguing a while back that banks should be forced to write down their loans to the value of the underlying principal? This was essentially my objection at the time. :)” (TFF)

No, I wasn’t – and wipe that silly smile off your mugg. What I have always pointed out is that banks don’t have the equity to write-down all their underwater loans to FMV. That hasn’t changed – though nobody but me seems to care that the whole idea is a non-starter for that very reason.

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By: TFF http://blogs.reuters.com/felix-salmon/2012/07/11/why-the-eminent-domain-plan-doesnt-hurt-second-liens/comment-page-1/#comment-41709 Thu, 12 Jul 2012 13:56:06 +0000 http://blogs.reuters.com/felix-salmon/?p=15966#comment-41709 “The problem is in valuation of the asset taken. That pesky 5th Amendment requires that FMV be paid for the asset.”

Yes — and I imagine it would take the SCOTUS to determine whether or not an auction process can be used to determine FMV. At least I’ve never heard of that being used in the past.

“So what? – unsecured loans have trading value too – think, securitized credit card receivables.”

Weren’t you arguing a while back that banks should be forced to write down their loans to the value of the underlying principal? This was essentially my objection at the time. :)

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By: MrRFox http://blogs.reuters.com/felix-salmon/2012/07/11/why-the-eminent-domain-plan-doesnt-hurt-second-liens/comment-page-1/#comment-41701 Thu, 12 Jul 2012 12:01:07 +0000 http://blogs.reuters.com/felix-salmon/?p=15966#comment-41701 Good discussion – entertaining too, particularly the parts where non-lawyers debate the fine points of the law.

IMO there’s nothing about the SanBerdo (2-r’s) plan that can’t be made Constitutionally OK. The problem is in valuation of the asset taken. That pesky 5th Amendment requires that FMV be paid for the asset.

As noted – high-rate, performing, underwater loans have a trading value greater than the FMV of the securing property. In effect, they are unsecured loans to the extent of that value over the property’s FMV. So what? – unsecured loans have trading value too – think, securitized credit card receivables.

The complication – and the opportunity (non-recourse states only) – arises from the fact that the borrower can erase (at will and at any time) any excess trading value of the loan over the FMV-prop by simply ceasing payments on the loan, forcing foreclosure and sale/recovery at no more than FMV-prop. That has the nice feature of erasing any Seconds too.

Could this whole process be expedited by eminent domain, avoiding destruction of the borrower’s credit and all the other ills of foreclosure? I don’t see why not. I also don’t see how there’s any money to be made here – except maybe by shorting stocks of Seconds-heavy banks.

I can think of a lot of reasons not to do this deal with MRP, but none of them are legal issues; they all have to do with the unsavory matter of getting involved in anything that involves one Mr. Phil Angelides.

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2012/07/11/why-the-eminent-domain-plan-doesnt-hurt-second-liens/comment-page-1/#comment-41681 Thu, 12 Jul 2012 04:50:34 +0000 http://blogs.reuters.com/felix-salmon/?p=15966#comment-41681 realist, what if you pass a law that implements a new rule for foreclosing on homes? – they can’t be foreclosed unless there is a plan for getting them occupied within a specified time-frame. If they fail to meet the deadline, the home is subject to condemnation, and acquisition by the state. I mean, some towns will fine homeowners for not keeping up appearances, this goes a step further (o.k. maybe more than a step).

There is no fair or right way to set the market value, only one that attempts to eliminate politics from the calculation on a home-by-home basis.

I realize this isn’t the biggest problem facing society, but if we’re talking about using eminent domain to deal with problem mortgages, it focuses more directly on the problem that trying to trade mortgages.

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