Several readers sent me links to various articles like this one, which discuss yet another busted municipality's plans to get rich quick via the use of the power of eminent domain to seize underwater mortgages and write down the principal balances so that a select group of homeowners can reap the benefits of the municipality's police powers at the expense of mortgage loan investors. This time, the police state charge is being led by a burg on the right coast rather than the left, Irvington, New Jersey.
The city's mayor proclaimed that this plan is better than others because the city plans to only hose private label security owners rather than holders of Fannie Mae, Freddie Mac or Ginnie Mae mortgage-backed securities. That obviously appeals to folks who believe that private business has no place in the residential mortgage markets in the first place, mortgage lending being a function akin to a public utility, where loans ought to be rationed out via a command and control system micromanaged by government bureaucrats.
Smith said the city will try to avoid being sued through "friendly condemnation," which offers incentives to the mortgage owners if they agree to avoid litigation.
"Incentives"? In New Jersey, that means you won't end up as part of a concrete foundation pier of a warehouse. How about the "incentive" of never having to lend again in Irvington, N.J.? If the city proceeds with this asset grab, that ought to be an easy incentive to realize.
One of the creators of this scheme, a college professor (tell me you're not surprised), inadvertently damned the entire scheme with this bit of truth-telling.
According to Cornell University law professor Robert C. Hockett, eminent domain is one of the few tools available to take over and write down an underwater mortgage because it gives municipalities the power to circumvent mortgage contracts, acquire loans from bondholders, write them down and give them back to the bondholders.
"Some government instrumentality is going to have to do this," said Hockett, who helped create the approach. "No private actor can get around the contracts, but a public actor can."
That's right: the scheme uses government power to "get around" contract rights. The 5th and 14th Amendments to the US Constitution be damned. The power of eminent domain ought to be used sparingly and only when there is a pressing need for the government taking private property for public purposes, not to benefit a few. The outrage on the left over the Kelo v. City of New London decision in 2005 has turned full circle. It's not right to seize private property of homeowners to benefit a private commercial development but it's just fine to seize private property of mortgage investors to benefit a small group of homeowners.
That's why the ACLU, which, as another article on the proposal notes, "has frequently found itself opposing eminent domain proposals," is supporting the taking Irvington.
The difference in Irvington, [ACLU-NJ Executive Director Udi] Ofer said, is “racial justice,” creating a real-estate free market by making loans available to local residents at rates that are normal elsewhere..
In other words, the ends justifies the means.
Hypocrisy: "The practice of professing beliefs, feelings, or virtues that one does not hold or possess; falseness."