We’ve all heard the old saying “once a cheater always a cheater.” Now thanks to Wall Street we’ve been given a new variation: “once Wall Street, always Wall Street.” In other words; once you cause the largest financial crisis since the Great Depression due to bad behavior and wrongdoing, you will continue to engage in that bad behavior and wrongdoing since you won’t have to face any consequences as some habits are hard to break. Continue reading
Written by Roy Oppenheim for the South Florida Law Blog.
As 2014 continues to move along, one disturbing trend on the horizon is the re-emergence of Wall Street’s presence into the residential housing market. This time however it’s a horse of a different color and it could mean trouble.
During the last economic cycle, Wall Street provided easy money to anyone with a pulse, then bundled up these mortgages, and called the sacks of garbage Grade A securities as they were sold off to unsuspecting investors around the world as well as here at home.
Now eight years later we are seeing a variation on an old theme amid froth and bubble. This time instead of serving the investors with a monthly stream of income based on purported mortgage payments, Wall Street is providing investors with a security backed by the rental income of single-family homes.
Cities are turning to the concept of eminent domain to battle sinking property values and assist homeowners in distress.
The desperate fight against the long foreclosure crisis plaguing working-class neighborhoods across the country may have found its “White Knight” in the concept of “Eminent Domain.” This knight’s armor is far from shining and is filled with chinks, but nevertheless may function as a champion for underwater homeowners. Eminent Domain is the legal doctrine that gives governments the right to take private property for public use to exercise functions of public character. Further, the U.S. Constitution requires that when the government uses such power the people are fairly compensated.
Perturbed by the slow pace of the recovery, cities are taking matters into their own hands. They are using Eminent Domain to buy mortgages and reduce homeowner debt. In effect, a city would first offer to purchase underwater loans at an estimated fair market value. Once purchased, the city would then reduce the debt and allow the homeowner to refinance the loan, possibly pumping equity into a once underwater home. In the event that a city’s purchase offer is declined, they would then turn to eminent domain to condemn and buy the loan.
Cities from New Jersey to Las Vegas are in the process of passing resolutions built around eminent domain. Recently, Richmond, California gained notability as the first city to attempt to seize homes using eminent domain. Areas such as Newark, Seattle, and numerous cities across the west coast are contemplating using eminent domain as a solution for their drowning housing markets. What is unusual is that the property is not actually being taken, but rather the mortgage on the property is.
Wall Street’s Angst
The trend of using eminent domain to raise housing markets from the depths of underwater disaster is not without heavy opposition. Wall Street is viciously opposed to the idea. Big banks have declared themselves ready for an epic legal battle and have threatened to pinch-off all lines of mortgage lending to any area using eminent domain as a tool to override mortgages.
It remains to be seen whether the White Knight of Eminent Domain will raise underwater housing communities or drown beneath their depths. Regardless of the outcome, the battle is an intriguing one to keep an eye on.
Roy Oppenheim is Florida’s leading real estate and foreclosure defense attorney. He left Wall Street for Main Street and, in 1989, founded Oppenheim Law , Weston Title and the South Florida Law Blog with his partner and wife, Ellen. His entrepreneurial spirit and passion for helping to defend homeowners’ led Roy to start “In the Trenches” where he speaks out for the people and their constitutional rights. Prominently known as a legal blogger and often quoted in the media, Roy can be found in the newsroom on Twitter at @OpLaw and on Facebook.
Roy Oppenheim’s commentary was originally published on Yahoo Homes! and is being republished on South Florida Law Blog with their permission.
The Department of Justice, as much as they will try to tell you otherwise, believes it.
When push came to shove, prosecutors did not have the stones to do what is right, and what is absolutely necessary.
Wall Street has been given the road map to the land of Business As Usual. Just get as big as you want, do whatever you want, and have no fear of being caught. You will still be off-limits from criminal prosecution.
By choosing not to indict HSBC for money laundering, and instead handing them a nearly $2 billion settlement in order to defer prosecution, that is what the DOJ is effectively saying.
HSBC didn’t get handcuffs. They got a tax write off, otherwise known as the cost of doing business in today’s banking industry. Are we really supposed to call that a deterrent?
What’s troubling, and not the least bit ironic, is this is the same government that screams that homeowners who strategically default are creating a moral hazard.
That is exactly what federal prosecutors have done by not seeking an indictment. They have created a moral hazard on Wall Street, a slippery slope that will only get worse unless the DOJ reverses direction.
And this hazard will have a much greater impact on the real estate market than when a homeowner decided to walk away from a worthless underwater mortgage.
Edward DeMarco, acting director of the Federal Housing Finance Agency, has repeatedly made the argument that it is wrong for Fannie Mae or Freddie Mac to offer principal reduction to someone who is behind on their mortgage because it will encourage other homeowners to engage in risky behavior in order to benefit financially.