CoreLogic: Negative Equity Diminishing; NY Fed: Do More Eminent Domain For Negative Equity

Confounded Interest ^ | 06/12/2013 | Anthony B. Sanders

[whitedog57]

According to CoreLogic’s Q1 Equity report, 850,000 households returned to positive equity in their homesouthanks to the recent increase in house prices.

And here is the CoreLogic map of negative equity as of Q1 2013. The higher concentrations of negative equity are still in the sand states (Florida, California, Arizona and Nevada) and the rust belt cities of Chicago, Detroit and Cleveland.

So, the housing market is healing and as long as the government ceases to interfere, we should see further healing.

Then along came the NY Fed’s Robert Hockett with “Paying Paul and Robbing No One: An Eminent Domain Solution for Underwater Mortgage Debt.”

Hockett wants MORE government intervention in the housing market and MORE government taking of private property. And according to Hockett, it won’t cost a thing!

Silly me. I thought that if you give some a principal reduction on their mortgage, someone has to pay for it (a zero-sum game). I thought Matthew Lesko had joined the NY Fed.

To be sure, if you wrote down everyone’s principal to zero, there would be no defaults on mortgages. But SOMEONE has to pay for it! Even if the government seizes houses through eminent domain. Riverside California was considering eminent domain to clear negative equity (I sat in on the phone call). Everyone (but Hockett) understood that someone has to pay ftor principal writedowns. EVEN IF THEY WORK!

Laurie Goodman from Amherst Securities is a big proponent of principal reductions. She claims to have data showing that principal reductions lower the likelihood of default and that it is a NET positive.

But Ms. Goodman and Mr. Hockett ignore a simple fact. If lenders realize that government will step in and write principal down, lenders will want a larger equity stake by the borrower (as in 20% down … or more). Unless, of course, the government is backing it.

Besides, if the government was going to do principal reductions, they should have done it back in 2008 rather than wait until 2013 after millions have lost their homes.

[whitedog57]

Gangsters run wild!

[PGR88]

According to CoreLogic’s Q1 Equity report, 850,000 households returned to positive equity in their homesouthanks to the recent increase in house prices.

Woo Hoo! Now we can crank up the HELOC's again to buy stuff made in China!

[tbw2]

If your home is seized by eminent domain, who is to say you get to keep living their after the unsecured equity is written off? It could get sold to a developer or given to someone else as part of an affordable housing program.