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View Diary: Can a Small California City Take on Wall Street - And Survive? (298 comments)

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  •  Richmond then sells the new mortgage off, (14+ / 0-)

    recouping the cost of buying the old mortgage.  That's the theory anyway (actually, it's more complicated, involving a 3rd party, but then the diary would have gotten to be twice as long).

    •  No such thing as free lunch (6+ / 0-)

      For starters, this will take a lot of money to get off the ground---and that comes from where? Non recognition of this is Magical Thinking
      So, as per above, Richmond bargains the holder down from $400K to a large discount and winds up buying the Smith's mortgage for $185,000. they then raise the mortgage to $200K. then turn around and sell it----for $200K plus to cover their expenses.   Richmond has put out $185 K plus expenses and holds a mortgage for , lets say, $210,000. That's what they need to sell that mortgage for to break even. OK, still on the same page?
      the question is---and the whole thing will go nowhere until its figured out---where does that original $!85K come from? And assuming that they're not going to do it  one loan at a time, you're talking about an original kickoff requiring many many millions of dollars.  And where does that money come from?
      Its going to take a lot of money but whats more than that is it will really put taxpayer money at risk.  Basically this puts the City of Richmond into the business of buying and selling discounted mortgages---a risky business at best. Buying and selling of questionable mortgages is one of the factors that cause the financial crisis.

      You always come back to the question---where does the money come from for Richmond?

      I grew up in The Annex and owned houses in The Iron Triangle. Anybody who knows Richmond will know where that it

      Happy just to be alive

      by exlrrp on Sun Sep 15, 2013 at 11:10:46 AM PDT

      [ Parent ]

      •  As I said, a third party is providing (4+ / 0-)

        whatever capital is needed.  At least AIUI.

        •  A Wallstreet Hedge Fund? (4+ / 0-)
          Recommended by:
          jpmassar, Sparhawk, Utahrd, icemilkcoffee

          "I think that gay marriage is something that should be between a man and a woman.” - Arnold Schwarzenegger 2003

          by kerplunk on Sun Sep 15, 2013 at 11:50:49 AM PDT

          [ Parent ]

        •  That third party troubles me a lot (1+ / 0-)
          Recommended by:
          shanikka

          I only followed this tangentially, but it seems to have been pushed by a for-profit 3rd party who is hoping to cash in on these reduced price mortgages. In essence, we have a vulture who is hoping to borrow the muscles of the government, to help them buy mortgages that people refuse to sell them. This part really troubles me.

          The idea of the city using eminent domain to rescue underwater mortgages is a sound idea. I just don't like the angle of a for-profit vulture making money off of it.

        •  They must be a pretty stupid... (0+ / 0-)

          ...Third Party.

          Why would you buy a mortgage in a town that has a history of seizing mortgages?

          If the town made Wells Fargo take $200,000 for a $400,000 mortgage, who's to say they won't make you take $100,000 for it in a few years?

      •  And that doesn't include (3+ / 0-)
        Recommended by:
        jpmassar, cotterperson, ChemBob

        the hundreds of thousands of dollars needed for a years-long court challenge.

        But I do hope this works.  It will be a huge benefit to the citizens, the community and the state, and should speed up their economic recovery, which is still being slowed down and held back by continued problems in the housing sector.

        "In this world of sin and sorrow there is always something to be thankful for; as for me, I rejoice that I am not a Republican." - H. L. Mencken

        by SueDe on Sun Sep 15, 2013 at 12:06:54 PM PDT

        [ Parent ]

      •  Re no free lunch (8+ / 0-)

        There already investors ready to buy these mortgages -- Richmond will not put up the $$. They are in it because it's a good investment the old fashioned way (not REIT or derivatives)

        •  Richmond: Buying , bundling and selling mortgages? (1+ / 0-)
          Recommended by:
          jpmassar

          On property in Richmond. Which they have money into.
          What could go wrong?

          Happy just to be alive

          by exlrrp on Sun Sep 15, 2013 at 05:01:31 PM PDT

          [ Parent ]

          •  How could it go any worse (0+ / 0-)

            than things already have? Clearly the bankers are freaking out; possibly seeing their own afterlife heading for them if this spreads? We have all been getting held up in the modern equivalent of a stage coach robbery. It's time for us to step up on a local level and make it stop; sheriff and posse time.

      •  Help me out here (4+ / 0-)

        because I don't understand your math.  In this hypothetical example, Richmond buys a mortgage for 185k, then turns around and finances a new mortgage for 200k.  Unless they finance the new mortgage for 0% APR, that mortgage will make them substantially more than 200k but putting that aside and applying some simple arithmetic, 200k - 185k = 15k.

        In your version, 210k - 185k = 0, which you seem to account for with nebulous "expenses."  What expenses?  In most cases, closing costs, repairs and money to pay someone to do the legwork won't account for 15k.  And when we factor in the interest that will be made on the new mortgage, there will be a lot more than 15k to work with, never mind the 25k you are assuming.

        If Richmond finds a third party that is willing to buy the mortgages and take those risks, risks that will be mitigated by financing mortgages that are actually affordable and based on fair market value, what's your problem with the idea?  Is your concern here for Richmond or for Wall Street?

        Arrrr, the laws of science be a harsh mistress. -Bender B. Rodriguez

        by democracy inaction on Sun Sep 15, 2013 at 04:35:46 PM PDT

        [ Parent ]

        •  In the interest of a readably long diary (5+ / 0-)

          I did not explain all the details of the proposed program.  There are various analyses out there that you can read up on. You can probably find them with reasonable Google searches.

          A Cornell Professor by the name of Richard Hockett came up with the original idea and has done financial analysis.

          Honestly, I'm pretty sure I couldn't even explain most of the technical details.

          •  I can certainly understand (6+ / 0-)

            why Wall Street would be so hostile to the idea.  I'm having a harder time understanding why some Kossacks are apparently just as hostile and acting as if this were an idea that you came up with rather than something you're reporting on.  That there is concern is clear, but concern for whom is the question.

            Thanks for bringing this to our attention, it is deserving.

            Arrrr, the laws of science be a harsh mistress. -Bender B. Rodriguez

            by democracy inaction on Sun Sep 15, 2013 at 05:27:33 PM PDT

            [ Parent ]

    •  They borrow the money from a bunch of investors (5+ / 0-)
      Recommended by:
      jpmassar, cotterperson, BYw, kurt, splashy

      Who are specifically set up to do this.  They get a fee, and the city pays back the initial money when the city refinances the mortgage for the homeowners.

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