Using Eminent Domain to Write-Down Mortgages: An Economic Analysis
A handful of economically distressed cities and counties are considering using their power of eminent domain to write down the principal of underwater mortgage loans. Analogous to the condemnation of tangible real estate for public use, the city would “take” intangible mortgage loans from the lenders or investors holding the loans. According to the proposed idea, the underwater mortgage loans would be acquired for less than their stated face value, and then written down, refinanced, and sold to investors. This article reviews the legal basis and economic impact of such government forced write-down and refinancing. We develop a model of negative equity mortgage default both with and without government takings, to determine if the use of eminent domain is socially desirable from a policy perspective. We find a trade-off between the immediate benefits of avoiding current mortgage defaults and longer term costs of increased interest rates. The weighting of this trade-off is impacted by the determination of just compensation.
|Date of creation:||Mar 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:cup:cbooks:9781107005259 is not listed on IDEAS
- Brueckner, Jan K, 2000. "Mortgage Default with Asymmetric Information," The Journal of Real Estate Finance and Economics, Springer, vol. 20(3), pages 251-74, May.
When requesting a correction, please mention this item's handle: RePEc:uct:uconnp:2013-05. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Francis Ahking)
If references are entirely missing, you can add them using this form.