Yale Professor Robert Shiller proposes using eminent domain to to force mortgage holders to write down "underwater" mortgages to their "fair market value"? Surely he jests. Sounds like the appraisal industry's wet dream. Let's see....There are estimates that more than 20% of homeowners with mortgages have negative equity, most of whom either refinanced during the easy money days, treating their home equity as an ATM machine; or invested in real estate with very little equity to begin with, following the dictum of the day that real estate values always go up. There are, and always have been, risks associated with both lending and borrowing money. Risks that got totally ignored six to ten years ago. Accepting the consequences of ignoring risks teaches prudence and better decision making. Wait, we can't have that - it might mean accepting individual responsibility. Now, the good professor advocates that all the risks of borrowing money be transferred to the lender. I wonder what potential future lenders will think about this process. Think they might tighten lending standards? Think they might require 30% down? Think this might severely limit the people qualified to buy homes? Just wondering. People, there are no magic bullets to solve this self-inflicted problem; only time, patience, and the steady, deliberate paying down of debt. Unfortunately, patience just isn't our strong suit.
"But eminent domain law needn’t be restricted to real estate. It could be applied to mortgages as well. Governments could seize underwater mortgages, paying investors fair market value for them. This is common sense too. The true fair market value for these mortgages is arguably far below their face value, given the likelihood of default, with its attendant costs.
Professor Hockett argues that a government, whether federal, state or local, can start doing just this right now, using large databases of information about mortgage pools and homeowner credit scores. After a market analysis, it seizes the mortgages. Then it can pay them off at fair value, or a little over that, with money from new investors, issuing new mortgages with smaller balances to the homeowners. Taxpayers are not involved, and no government deficit is incurred. Since homeowners are no longer underwater and have good credit, they are unlikely to default, so the new investors can expect to be repaid.
The original mortgage holders, the investors in the new mortgages, the homeowners and the nation as a whole will generally be better off. There will surely be some who may not agree, like the holdout farmer opposing the highway, but eminent domain ought to be able to push ahead anyway."
I don't mind telling you, I find this sort of logic scary.
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