At first glance, I was a little skeptical of the idea and
had a couple questions – chiefly, can we trust a corporation clearly out to
make a buck? What will happen to
the deficiency?
On Monday, “The Huffington Post Live” launched, and one of
their first discussions was about this topic. Among the guests at the round table were actor John Cusack
(someone with whom I’m a fan of both his acting chops and social/political
activism), as well as Mortgage Resoultion Partners CSO John Vlahpolus. You can see the segment, here.
After watching the discussion, I started looking for more
opinions on the topic and came across the blog of someone else I’m a fan of –
Matt Taibbi of Rolling Stone magazine, who wrote a very supportive piece on the
topic. You can read the blog,
here.
With both of these anti-establishment heavyweights on-board
– at least with the concept, if not this specific proposal from MRP – it
certainly made me feel like this might actually be a legitimate vehicle for
fixing the housing mess.
Both men concede that yes, MRP will make money from this
plan and that’s ok. After all,
they are business and there is no crime in making a reasonable profit. The crime, is making it at the peril of
homeowners who have done nothing wrong but continue to make their payments, on
time – as obligated – only to see their homes continue to drop in value,
digging them into a deeper hole should they eventually need to sell.
As for the deficiency, I’m still not seeing a clear
answer. Currently, MRP is working
with San Bernadino Co, in California, which is a non-deficiency state: meaning in most instances, a lender
can’t pursue for the deficiency.
Does that mean this process would only work in non-deficiency states?
My questions aside, the more interesting dynamic in all of
this has been the response from Wall Street, which appears to be scared enough
to go on the attack already.
According to Taibbi:
“But MRP’s role aside, this is
also a compelling political story with potentially revolutionary consequences.
If this gambit actually goes forward, it will inevitably force a powerful
response both from Wall Street and from its allies in federal government,
setting up a cage-match showdown between lower Manhattan and, well, everywhere
else in America. In fact, the first salvoes in that battle have already been fired.
For instance, the Wall Street
trade association, SIFMA, this past week issued a denunciation of the eminent
domain plan that includes a promise of a legal challenge. “We believe the MRP
proposal is unlikely to survive a judicial challenge,” one of SIFMA’s lawyers
wrote. Other trade groups are lining up to describe the tactic as illegal or
"unconstitutional."
More insidiously, however, SIFMA
pledged that its members will not allow future home loans originated in
counties that use the eminent domain tactic to participate in something called
the To-Be-Announced (TBA) markets for mortgage-backed securities. Explaining
this would require a sharp detour into a muck of inside-baseball mortgage
terminology, but the long and the short of it is that SIFMA is promising to
make it difficult for any community that tries this tactic to obtain private
mortgage financing in the future.
Essentially, SIFMA is promising
a kind of collusive financial lockout of uncooperative communities. The threat
would appear to be a high-handed form of redlining that raises serious
antitrust questions, but in a way, that kind of response is to be expected.”
Well, to quote Ron Burgandy, “Boy, that escalated
quickly.” Or at least, that’s
certainly a much stronger initial response than I’d have expected.
But yesterday the tough talk continued, as Ben Hallman of
The Huffington Post chronicled more threats from the SIFMA and the Association
of Mortgage Investors, among others. You can read that piece, here.
Clearly, this isn’t a story that’s going away, or being
brushed aside as a wacky idea – this thing has legs. We will keep our eyes and ears on this one and provide more
information as it becomes available…
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