Well, California has gone Kelo one better. They want to use it as a legal basis not to seize property, but to seize the mortgages on them and take the loans away from the investors who legitimately own the notes:
Eminent domain allows a government to forcibly acquire property that is then reused in a way considered good for the public—new housing, roads, shopping centers and the like. Owners of the properties are entitled to compensation, which is usually determined by a court.
But instead of tearing down property, California’s San Bernardino County and two of its largest cities, Ontario and Fontana, want to put eminent domain to a highly unorthodox use to keep people in their homes.
The municipalities, about 45 minutes east of Los Angeles, would acquire underwater mortgages from investors and cut the loan principal to match the current property value. Then, they would resell the reduced mortgages to new investors. …
For a home with an existing $300,000 mortgage that now has a market value of $150,000, Mortgage Resolution Partners might argue the loan is worth only $120,000. If a judge agreed, the program’s private financiers would fund the city’s seizure of the loan, paying the current loan investors that reduced amount. Then, they could offer to help the homeowner refinance into a new $145,000 30-year mortgage backed by the Federal Housing Administration, which has a program allowing borrowers to have as little as 2.25% in equity. That would leave $25,000 in profit, minus the origination costs, to be divided between the city, Mortgage Resolution Partners and its investors.
To bring this down to a personal level, imagine you loaned someone $50 bucks, and he agreed to pay you back $12 a week for five weeks, a total of $60. Then a large thug armed with a revolver comes along and tells you he wants the loan papers or else, and all he's going to give you is $30 as payment in full. He then goes to his pal at the local pawnshop and has him write up a new loan for your friend at only $20 plus interest, to be paid not to you, but to the pawnshop. The thug and the pawnshop owner then split the profits. I doubt you'd put your hard earned money into a similar type of investment again.
Yes, this kind of criminal activity is just what the already unstable housing and mortgage market needs - a major disincentive for investors to go anywhere near mortgages for fear of getting robbed by politicians looking to bribe voters by appealing to 'the people'.
Not only that, but it will make it a lot tougher for future homeowners to buy a home. Because when risk increases, so does the rate of return. So this wonderful little tactic, if it spreads, will force lenders to raise bond yields to attract investors, if they can still be found, which will mean higher mortgage rates for borrowers.
Investors holding the current mortgages predict the move will backfire by driving up borrowing costs and further depress property values. "I don't see how you could find it anything other than appalling," said Scott Simon, a managing director at Pacific Investment Management Co., or Pimco, a unit of Allianz SE.
Tell me..is this any different that what goes on in your typical Junta-style dictatorship?