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

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  •  There's a real problem there. (3+ / 0-)
    Recommended by:
    Sparhawk, VClib, Justanothernyer

    The fact that the city thinks it can sell the mortgage for MORE than they pay the lender is almost per se evidence that the city is paying the lender LESS than FMV - i.e., LESS than the mortgage can be sold for.  

    If the lender is entitled to FMV -- which it is, assuming the city can seize the mortgage (which itself is questionable)-- then the lender by law, and constitutionally, is entitled to what that third party is willing to pay for that mortgage.

    I cannot see how they can argue that they are paying the lender FMV for the mortgage if the plan is to then resell that very same mortgage to someone else at a higher price.  

    In other words, the very fact that the city thinks it can make money from seizing and selling the mortgage likely renders the program unconstitutional (because they would be paying the lender less than actual FMV)  

    •  but the value of the new mortgage is higher (0+ / 0-)

      because the Loan-to-Value (LTV) ratio is much better for the new loan, payments are lower, and the incentives are much better aligned for the homeowner.

    •  They are not selling the new mortgage on the open (1+ / 0-)
      Recommended by:

      market. My understanding is that the owner/resident of the house would assume this new mortgage. You might ask- why would the owner/resident of the house be willing to put themselves $15k underwater. And that is a valid question. But $15k underwater is a damn sight better than $200k underwater. It is conceivable that people would do it when the alternative is to be tossed out on your bum with a ruined credit score.

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