Re:Richmond’s rules: Why one California town is keeping Wall...
by Lazare on Sunday October 06, 2013 @06:11PM
(#6505663)
> The market value of the mortgage is whatever it would actually sell for on the open market.
Yes. But as a practical matter, the market value of an underwater but performing loan is going to be significantly higher than the underlying asset, and most of the loans in the pool Richmond is looking at are performing.
A defaulted loan might be worth nothing more than the underlying asset less foreclosure costs (which can, as you note, be high); in some cases that might work out to be around 80% of the house value (which is what Richmond plans to offer), so in a small minority of cases Richmond's plan may pass constitutional muster. Unfortunately, their plan then relies on turning around and having the same home buyer get a new mortgage. I'll give you three guesses as to how easily a guy who just defaulted on his last mortgage will get a new one on the same house...
In short, yes, valuing mortgages is complicated. But they are liquid, traded investments, and the market price is simply higher than Richmond is offering on average. And the minority where it isn't won't work on its own.
Yes. But as a practical matter, the market value of an underwater but performing loan is going to be significantly higher than the underlying asset, and most of the loans in the pool Richmond is looking at are performing.
A defaulted loan might be worth nothing more than the underlying asset less foreclosure costs (which can, as you note, be high); in some cases that might work out to be around 80% of the house value (which is what Richmond plans to offer), so in a small minority of cases Richmond's plan may pass constitutional muster. Unfortunately, their plan then relies on turning around and having the same home buyer get a new mortgage. I'll give you three guesses as to how easily a guy who just defaulted on his last mortgage will get a new one on the same house...
In short, yes, valuing mortgages is complicated. But they are liquid, traded investments, and the market price is simply higher than Richmond is offering on average. And the minority where it isn't won't work on its own.