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Paying Paul and robbing no one: an eminent domain solution for underwater mortgage debt

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  • Robert Hockett
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    Abstract

    In the view of many analysts, the best way to assist “underwater” homeowners—those who owe more on their mortgages than their houses are worth—is to reduce the principal on their home loans. Yet in the case of privately securitized mortgages, such write-downs are almost impossible to carry out, since loan modifications on the scale necessitated by the housing market crash would require collective action by a multitude of geographically dispersed security holders. The solution, this study suggests, is for state and municipal governments to use their eminent domain powers to buy up and restructure underwater mortgages, thereby sidestepping the need to coordinate action across large numbers of security holders.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of New York in its journal Current Issues in Economics and Finance.

    Volume (Year): 19 (2013)
    Issue (Month): Jun ()
    Pages:

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    Handle: RePEc:fip:fednci:y:2013:i:jun:n:v.19no.5

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    Related research

    Keywords: Mortgages ; Securities ; State finance ; Municipal finance;

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    1. Donghoon Lee & Christopher Mayer & Joseph Tracy, 2012. "A New Look at Second Liens," NBER Chapters, in: Housing and the Financial Crisis, pages 205-234 National Bureau of Economic Research, Inc.
    2. Andrew Haughwout & Donghoon Lee & Joseph Tracy & Wilbert van der Klaauw, 2011. "Real estate investors, the leverage cycle, and the housing market crisis," Staff Reports 514, Federal Reserve Bank of New York.
    3. James Orr & John Sporn & Joseph Tracy & Junfeng Huang, 2011. "Help for unemployed borrowers: lessons from the Pennsylvania Homeowners’ Emergency Mortgage Assistance Program," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 17(Apr).
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