I last updated you on January 29, 2013, letting you know that the Homeownership Protection Program Joint Powers Authority — the entity created by San Bernardino County and the cities of Fontana, California and Ontario, California to study, develop, and carry out the underwater mortgage condemnation plan — had decided to abandon any further consideration of the use of eminent domain to acquire underwater mortgages. It’s time for another update!
As reported by The Wall Street Journal on February 13, 2013, “Economists from the New York and Boston Fed banks found that many homeowners in San Bernardino County in California . . . have benefited from other forms of help that reduced the burden they have endured since the financial crisis and recession sacked the value of homes in the area.”
The New York Federal Reserve Bank has posted the full report on its website. The three authors of the report noted the following:
- “First, the share of privately securitized mortgages that are still active five years after the beginning of the subprime crisis is relatively small.”
- “Second, while a vast majority of these loans in San Bernardino County is severely underwater, the required payment (at least on the first lien) has decreased significantly for many of them.”
- “And though these loans continue to enter serious delinquency at relatively elevated rates, things look much better than they did three to four years ago, in part because house prices have increased quite rapidly over the past year.”
The authors acknowledged that this falls under the plain English heading “good news.”
The authors went on to observe that “[w]hen evaluating the costs and benefits of policy options such as the use of eminent domain, these facts should be kept in mind.” To me, this means don’t use a blunt instrument like eminent domain when market forces are beginning to stabilize the housing market.
Robert Hockett, the Cornell University law professor who is advising the company behind the underwater mortgage condemnation concept, welcomed the good news in the New York Federal Reserve Bank’s report. Professor Hockett sounded “a few cautionary notes,” however, in his response to the New York Fed’s blog post. Click here for Hockett response.
The New York Federal Reserve Bank’s blog post is additional evidence that the use of eminent domain to try to solve the foreclosure crisis would be counterproductive. Stay tuned to our blog for further updates.