Please note this program would refinance out of private mortgages and into mortgages that federally guaranteed. If you want to fix housing then strategic default is best.
This program is a vampire program because it sucks the life out of old mortgages for the benefit of brand new mortgages.
By Al Yoon | The Wall Street Journal
Tapping the power of eminent domain to repair underwater mortgages could generate investor returns of up to 30% and billions of dollars in fees for bankers behind the proposal, according to people with knowledge of the plan.
The use of eminent domain to seize and restructure mortgages is an idea that has enraged bondholders who worry they will be forced to sell mortgages from their securities to municipal governments at a steep discount. But the proposal, being pitched to municipalities by advisory firm Mortgage Resolution Partners, has piqued the interest of San Bernardino County and two other California municipalities where home-value declines of 50% or more have crippled local economies.
Despite the controversy, some potential investors in Mortgage Resolution’s plan are stepping forward. “We think the program has legs and a fairly strong legal justification” to seize mortgages with eminent domain, said Tom Capasse, co-head of Waterfall Asset Management, which said it is considering investing in the plan.
Under the plan, loans that are current and underwater—that is, their balances are greater than the home’s value—would be seized from mortgage bonds at prices up to 25% below appraised home values, then refinanced through a federal loan program.
It isn’t clear whether the eminent domain plan will get off the ground. The proposal has disturbed financial trade groups who say it violates mortgage contracts and isn’t a public use as required under eminent domain. The groups assert that Mortgage Resolution Partners will encourage municipalities to deeply undercut market value when buying the loans, doling out losses to mortgage bondholders and handing big gains to itself and its investors.
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Proprietary OC Housing News home purchase analysis
$520,000 …….. Asking Price
$595,000 ………. Purchase Price
8/26/2004 ………. Purchase Date
($75,000) ………. Gross Gain (Loss)
($47,600) ………… Commissions and Costs at 8%
($122,600) ………. Net Gain (Loss)
-12.6% ………. Gross Percent Change
-20.6% ………. Net Percent Change
-1.7% ………… Annual Appreciation
Cost of Home Ownership
$520,000 …….. Asking Price
$104,000 ………… 20% Down Conventional
3.70% …………. Mortgage Interest Rate
30 ……………… Number of Years
$416,000 …….. Mortgage
$96,598 ………. Income Requirement
$1,915 ………… Monthly Mortgage Payment
$451 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$130 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
$2,495 ………. Monthly Cash Outlays
($303) ………. Tax Savings
($632) ………. Equity Hidden in Payment
$127 ………….. Lost Income to Down Payment
$150 ………….. Maintenance and Replacement Reserves
$1,837 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$6,700 ………… Furnishing and Move In at 1% + $1,500
$6,700 ………… Closing Costs at 1% + $1,500
$4,160 ………… Interest Points
$104,000 ………… Down Payment
$121,560 ………. Total Cash Costs
$28,100 ………. Emergency Cash Reserves
$149,660 ………. Total Savings Needed
The property above is available for sale on the MLS.Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
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