The avalanche of news items concerning San Bernardino County’s idea of taking mortgages on “underwater” homes at their fair market value, agreeing with the homeowners who would assume the debt obligation at a new, reduced figure (as opposed to the nominal loan balance), and then live happily ever after is gaining steam — at least in press coverage — like a runaway locomotive.
But the problem is that the press has presented us with contradictory stories on how this scheme would be implemented. Would “bundled,” securitized mortgages be included? Would only performing mortgages be subject to this scheme? Some reports say “yes,” to both questions, while others say “no.” Also, no one seems to give much thought to how those “underwater” mortgages would be valued under eminent domain valuation rules — not as simple as it may seem at first.
Most of these posts out there are not addressing the valuation problems inherent in this scheme. So don’t be hasty in drawing any firm conclusions, at least until we see what emerges from this sausage machine. Stay tuned.
For our earlier posts click here.