Thank goodness things like this don’t happen in Canada! But this is one mortgage story from California that was so shocking, we had to tell you about it. If nothing else, it gives us one more reason to be happy that Canada’s and America’s mortgage markets are very different.
The story takes place in Richmond, California. This is an area that still has the bitter aftertaste of the Great Recession in their mouths, and that will do just about anything to keep themselves from the crisis that they saw just five years ago. Even if that means seizing the mortgages of homeowners the government believes simply can’t afford them.
The legal term is eminent domain, and it’s the legal process in which the government can take ownership of land that is currently not theirs and provide the best compensation they can to the owners of that land. In the past this has been done to allow the government to build much needed roads, utilities, and other infrastructure necessary to keep the area afloat and functioning. However, now they’re using it to seize mortgages they believe to be too much for the homeowners who took them on.
The idea to take these mortgages was not an idea the government dreamed up on their own, but was a suggestion from the investing firm Mortgage Resolution Partners. This firm told the government that they would find the funds to buy mortgages from residents with too-large mortgages. After providing the money and all the legwork, the firm would then receive a 10 per cent take on those mortgages when it was time for them to be refinanced.
Currently, those homeowners have had “offers” to buy their mortgages. Those offers don’t mean much though because should homeowners refuse, their mortgages will simply be purchased after August 14 by the firm anyway.
The city says that it’s joined with Mortgage Resolutions in this move “out of concern for public interest” as they try to stop any area from falling into the same kind of crisis they saw five years ago, when many American homes were underwater because homeowners simply couldn’t afford the mortgages. But it’s that very public that’s going to be most harmed by the move.
“There will be long-term harm as lenders are likely to pull out of those markets and mortgage financing costs across the board are likely to rise,” says Jaret Seiberg, a banking analyst in the States. “We want the city to purchase the loans at fair market value so we can manage our lives more effectively and economically.”
In Canada, it’s possible for the government to purchase your mortgage or even take control over your home or land (although thankfully in the Richmond case, this doesn’t seem to be happening.) In this nation though, home dwellers typically need to be associated with some kind of crime before that can occur, leaving law-abiding citizens feeling safe in the knowledge that the government most likely won’t just decide to purchase, or have someone else purchase, their mortgage right out from under them.
Just another reason to be grateful that we live in this beautiful country!
