Seizing Underwater Mortgages Is Not Such an Eminent Thing

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Eminent domain is a bad idea. Let’s put this as clearly as possible: cities, counties, don’t do it.

This issue has been bouncing around for months now and has new traction as the city of Richmond, Calif., has made plans to seize underwater mortgages in an attempt to forestall foreclosures. This would be the first municipality to do so.

While it is a good thing to be concerned about the welfare of citizens, government’s seizing private property is a bad thing. Lenders would not feel secure about their collateral. Investors would look for other investments not as likely to be meddled with.

Richmond’s plans may not come to anything. (Other cities, like Chicago, considered but then rejected eminent domain.) Moody’s Investors Service said recently it didn’t think Richmond will carry out any seizures and that other municipals are unlikely to follow suit, because rising property values are lifting up many underwater loans and the lawsuits would start buzzing around their ears.

The foreclosure mess is not yet over, but it is half over at least. The last five years have seen repeated attempts to deal with it. These measures, while they haven’t been universally smoothly carried out, are in place as the current best practices.

They include, at their most lenient, just letting homeowners stay in homes instead of evicting them as the foreclosure logjam takes years to proceed, especially in “judicial” states. If not this kind of de facto forbearance, lenders have been open to loan modifications, where interest rates, payments or even principal forgiveness have been used. Credit counseling can help those behind in their mortgages but not yet in foreclosure proceedings. “Door knockers” can be used to get borrowers on board with potential solutions. Owners can be turned into renters of the same property they can’t afford a mortgage on. And there are many others.

Cities and counties can find other ways to help their burdened homeowners. Credit counseling could be one way to go. Direct emergency cash assistance might be helpful, though municipalities these days don’t seem to be able to buy a pot between them.

It is a sad day when Detroit, once a fabled American city with its thriving automobile industry, is forced into bankruptcy protection, just as so many of its homeowners have been forced into defaults.

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