Mortgage eminent domain would be political payoff
August 17, 2012 4:58PM
Updated: September 20, 2012 9:57AM
D ear Mr. Berko: Could you explain the new federal mortgage program using eminent domain to buy mortgages deeply below their current balances and then refinance them with a government guarantee at a lower principal amount at 2.5 percent interest? I bought a home in 2006 for $188,000 and took a $175,000 mortgage at 9 percent with GMAC, paying $1,408 a month. Because my hairstyling business is down by 60 percent, I can’t afford the payments, but I’ve never missed a month.
My home — for tax purposes — is appraised at $133,000. I’ve tried to refinance, but GMAC won’t lower my rate, because I don’t make enough money. I’ve been to different banks, and none will help me. In fact, two banks told me to stop making payments, which they say would force GMAC to negotiate a lower rate. I have talked to the GMAC people several times, but they are not nice and don’t care what I do. Can you give me any advice?
Port Charlotte, Fla.
Dear DL: Because you don’t live on the Left Coast (California), you don’t qualify for that program. Meanwhile, using the power of eminent domain to acquire residential mortgages has not been approved by the courts — yet. But if sufficient political contributions can be raised and if enough lobbyists cozy up to the right federal judges, the courts will grant approval with alacrity. When that happens, several fortunate, politically connected investment groups will earn annual returns between 30 percent and 35 percent, and banks will be collecting billions in new fees. Eminent domain approval will be one of the biggest political payoffs since the robber barons of the 19th century (Drew, Fisk, Brady, Astor, Gould, Frick, etc.) literally gave suitcases stuffed with $100 bills to Congress, the judiciary and state legislatures.
Sadly, GMAC is far from a customer-friendly company and feels it’s beneath its dignity to talk to you. So perhaps you should stop making those mortgage payments. It’ll take the GMAC stupids at least 18 months to figure out what you are doing. So if you bank 18 mortgage payments, you’ll have $25,000 in cash and be in a position to tell those gormless dunderheads to stick carrots in their collective ears. It might improve their hearing!
One of the Obama administration’s bigger political contributors, Steven “Slick Steve” Gluckstern — chairman of Mortgage Resolution Partners, a San Francisco venture capital firm — wants to help the government stabilize the home market by seizing mortgages, using the concept of eminent domain.
Slick Steve reckons that a lower interest rate on a lower principal amount will keep homeowners current on their mortgages and stabilize the downward drift of the housing market. And at the cost of immodest losses to mutual funds, real estate investment trusts and exchange-traded funds that own these mortgages, the concept has merit. Under this plan, 5.4 million current but underwater loans, with balances greater than the homes’ values, could be forcibly purchased from REITs, ETFs and mutual funds at 35 percent below appraised value and refinanced through a new federal program.
Working with various California municipalities, Mortgage Resolution Partners will first advise cities in San Bernardino County on how to grossly under-appraise the market, kidnap the loans and force shareholders to take crippling kicks to their shins. Then Slick Steve and his thimbleriggers will, for a sweet fee, restructure the mortgages with new, government-guaranteed loans at 2.5 percent.
Here’s how this nifty boondoggle buries. Assume a home in Silver Lake is appraised today at $100,000 but has a $145,000 mortgage balance at 6 percent. The municipality will, via eminent domain, buy the mortgage for $75,000, sticking the mortgage holder with a $70,000 loss. The homeowner, guided by Slick Steve’s people at MRP, applies to refinance into a government-guaranteed $97,500 mortgage ($75,000 plus $22,500) at 2.5 percent. Slick Steve makes $22,500 (a 30 percent profit) and gets a $5,000 federal stipend to cover valuations, legal and accounting. Slick Steve becomes a multibillionaire and contributes millions to several political action committees, while ETFs, mutual funds and REITs lose chunks of their net asset values. The amount of money that can be made with well-placed political contributions to the judiciary, the House or the Senate certainly boggles one’s imagination.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.