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

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  • Robert Hockett

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.

Suggested Citation

  • Robert Hockett, 2013. "Paying Paul and robbing no one: an eminent domain solution for underwater mortgage debt," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 19(Jun).
  • Handle: RePEc:fip:fednci:y:2013:i:jun:n:v.19no.5
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    References listed on IDEAS

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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. Toni Dechario & Patricia C. Mosser & Joseph Tracy & James Vickery & Joshua Wright, 2010. "A private lender cooperative model for residential mortgage finance," Staff Reports 466, Federal Reserve Bank of New York.
    3. Andrew F. 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.
    4. James A. 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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    Cited by:

    1. repec:bla:ijurrs:v:40:y:2016:i:6:p:1094-1111 is not listed on IDEAS
    2. Radnai, Márton, 2015. "A lakossági devizahitelek átárazásának bumeránghatása
      [The boomerang effect of repricing household foreign-currency mortgage loans]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 113-138.

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