Paying Paul and Robbing No One: An Eminent Domain Solution for Underwater Mortgage Debt

In the view of many analysts, the best way to assist "underwater" homeowners-those who owe more on their mortgages than their houses are worth-is to reduce the principal on their home loans. Yet in the case of privately securitized mortgages, such write-downs are almost impossible to carry...

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Bibliographic Details
Published inCurrent issues in economics and finance Vol. 19; no. 5; pp. 1 - 12
Main Author Hockett, Robert
Format Journal Article
LanguageEnglish
Published New York Federal Reserve Bank of New York 30.05.2013
Subjects
Agreements
Bank officers
Bank portfolios
Collective action
Debt
Debt restructuring
Default
Delinquency
Eminent domain
Equity
Expected values
Foreclosure
Home loans
Homeowners
Housing
Housing policy
Housing prices
Lines of credit
Loan workouts
Loans
Markets
Mortgages
Securitization
Studies
Writedowns
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Summary:In the view of many analysts, the best way to assist "underwater" homeowners-those who owe more on their mortgages than their houses are worth-is to reduce the principal on their home loans. Yet in the case of privately securitized mortgages, such write-downs are almost impossible to carry out, since loan modifications on the scale necessitated by the housing market crash would require collective action by a multitude of geographically dispersed security holders. The solution, this study suggests, is for state and municipal governments to use their eminent domain powers to buy up and restructure underwater mortgages, thereby sidestepping the need to coordinate action across large numbers of security holders. [PUBLICATION ABSTRACT]
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ISSN:1936-2374
2163-4513