Compromise On Eminent Domain / Mortgage Seize
The use of Eminent Domain to seize mortgages sounds odd? Local governments seizing private investment in order to enhance the economic value of local communities seems counter intuitive? This is not a common practice, but it is not unheard of any longer either. I have my own personal feeling against such a idea that I explained clearly in my article last about this idea. http://www.benzinga.com/personal-finance/financial-advisors/12/07/2746998/dr-housings-new-frankenstein-eminent-domain
However, for the sake of compromise and working together, let's try to think of a way to make the Eminent Domain crowd happy and accept their plan to seize private investments.
Compromise # 1
Now, the big fear from the E.D. crowd is that lending institutions would not lend so freely into counties in which eminent domain was used to seize their loan, then pay the investor what is deemed fair value by the county. I completely understand why banks would want to price the factor of a government taking over your investment and giving you what they deem to be fair value.
However, in the spirit of compromise I offer this idea. Instead of banning all lending in these counties (which was never going to be the case) the banks should mandate 20% down payment on purchases in every city that has used eminent domain to seize mortgage for the good of the economy. I am not advocating a pricing hit on these new loans, just that every American citizen needs to come with 20% down payment so this can protect the banks against the government coming and taking their investments away. Twenty percent equity that should be enough of a buffer against the next job loss recession when home prices would certainly fall due to foreclosures.
Compromise # 2
Every single homeowner who accepted eminent domain should make their original loan applications made available to the public. This would be a great tool to see allow everyone to learn the homeowner got into trouble in the first place. Also, it would be clear whether the homeowners actually did have the income and assets stated on the original loan application by having the IRS verify this information. Also made public should be whether any of these homeowners did any cash out loan, thus making their equity problem worse. Providing all this information in public published pages will be a great tool for all Americans to see and make up their own mind if these borrowers warranted such government actions.
It is true that 99.9% of all cities in America have rejected this government plan to seize mortgage, because they hold the common sense thinking that you don't endanger the future of your city in terms of home-ownership by saving a handful of mortgages.
As of now Richmond California is the sole city in America that is pursuing this idea. Others cities in New Jersey and California are looking into the possibility of joining Richmond. I say let them. Let these local governments seize mortgages and then 10 years from now we can see if the action was worth it.
However, make no mistake, there will an additional layer of risk
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.