New York City lawmakers and housing advocacy groups have recently submitted a new proposal to buy back underwater mortgages to help struggling homeowners. NYC council members have requested Mayor Bill de Blasio on June 25,2014 to join them and assist homeowners, who are on the verge of facing foreclosure. The members have asked Mayor Bill de Blasio to use eminent domain and buy back bad mortgages.
At a recent news conference, three council members (Donovan Richards, Mark Levine and I. Daneek Miller) opined that eminent domain can be easily utilized to buy back mortgages from people who owe more than the fair market value of their house.
What is the main proposal?
The proposal is quite simple. The city would buy back mortgages from lenders and refinance them to match the current market price of the house. The objective is to avoid foreclosure. This is what Robert Hockett, the law professor at Cornell University Law School had to say about the proposal. Robert Hockett, the man who drafted the plan has also said that eminent domain can be used only for those mortgages that require government intervention for modification.
What is the current scenario?
As per the report published by the Mutual Housing Association of New York and New York Communities for Change, around 60,000 mortgages (maximum outside Manhattan) are underwater. This scenario has been prevailing since the subprime mortgage crisis in 2007.
It is said that African-American and Latino homeowners have been tremendously affected by underwater mortgages. Ismene Speliotis (The Association executive director) feels that African-American and Latino homeowners suffered more since they were targeted for private-label securitized loans. According to her, those loans have a great chance to get delinquent.
The Mayor and his office are unavailable for any comment. They have not yet given any response to emails or phone calls.
Is this proposal really good?
There is a clash of opinion regarding this new proposal. The New York Bankers Association has not appreciated the proposal. They feel that this proposal would slow down the housing market recovery. They're against the idea of using eminent domain since it would adversely mortgage credit.
On the other hand, Donovan Richards feels that this new proposal is more than good. If the proposal is implemented, then the New York City would be able to save billions of dollars in the long run. The foreclosure expenditures will be reduced and this would act as a boon for several homeowners.
Richards is fully empathetic with homeowners. He feels homeowners have suffered for a long period of time. They should get some relief now. It's time for the New York City to help homeowners. He said that the percentage of underwater mortgages increased specifically in places like the paces affected by Hurricane Sandy.
Hurricane Sandy has changed the lives of people in more than one way. It has not only increased the number of underwater mortgages but also raised the percentage of foreclosure.
Finally, New York is not the only city to make this kind of a proposal. Some other cities such as Richmond, Newark, California, etc, have given a similar kind of proposal as well.