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Is Mary kissel is joining us now from the Wall Street Journal given article on Wall Street Journal dot com right now we can put up.
And -- -- accounting became the third California city in two weeks to go bankrupt.
Companies and it is the left coast.
Hellenic -- -- probably in the best way to put it -- done about the slow week.
It's the left us -- and they must be doing something wrong.
And anyway so that it.
Nor -- resolution partners says it wants to stabilize -- housing markets by helping local.
Communities in trouble like San Bernardino what's their solution on the -- number two how did you find.
Story -- it what they're a lot of bad ideas for how to save the housing market in this has to qualify is the absolute.
In a nutshell.
This venture capital firm went to these municipalities that have been hit very hard by the housing crisis a -- they have a lot of so called underwater mortgages that means the mortgage is worth more.
In the current value of the home right and they said the local governments just don't take those mortgages from the investors who own them.
Then we you'll refinance them will find private investors.
Some demand bottom after they've been refinanced and we even venture capital firm will stand in the middle and take -- fee.
Now this is very attractive.
To the government BS no taxpayer money is used it's attractive to the homeowner because they get a free lunch.
First they had an underwater mortgage and and they don't and this venture capital firm loves it because they get a profit but.
The problem his.
It doesn't save the housing market.
It discourages private capital from ever coming back into the housing market why would you ever do that if your contract has broken.
And it -- simply in -- government in in housing.
Because ultimately there's no private capital there -- the only person left is the government right.
So it's -- you horrible idea -- tonight you say it hasn't been hit the I have to tell I don't think that one of these municipalities might actually do this Pomona fair and saying what -- -- -- -- because their foreclosure rates are super high.
And no one's making any money they're laying off.
All of their -- workers police for instance that we fuss about it -- they let me let you let the market work.
They should be more foreclosures in finally -- we're not talking about taking mortgages that are delinquent in other words.
In the process of foreclosure where the homeowners aren't paying.
The monthly payments -- talking about taking or -- who are kids amended cherry pick this stuff.
Out of basically private investor.
In investor's hands now but think who loses here.
Who is holding.
These mortgages pension funds mutual funds Fannie Mae and Freddie Mac which means that you and -- is US taxpayers and all the viewers out there.
Are on the hook here and the value of those holdings of those mortgage securities that they hold his immediately going to go down so.
It's not quite there are no losses here in the in the short term her immediate loss would have to prove us well of course have to prove it -- this is this is the the beauty from that this venture capitalist firm perspective.
They really have to do anything they can use the power of eminent domain.
To go and take that mortgage this really is is rather unprecedented.
In its its I I would think it's it's -- -- abusive eminent domain.
What have most of the people after.
This would happen what's different that's a great question because eminent domain is usually used to build roads.
And bridges and sift through ways and so the government seizes the house -- and it it.
It levels that it puts I 95 down but in this case the owner would stay in the home they just get the free lunch so.
When you talk about just -- -- good for the don't act.
It's great pretty young but it's terrible for the US housing market it's terrible for the private investor -- Indiana extending Swedish China map these places on the left coast is it at the quick pick no because they're not in the touch Fannie Mae and Freddie backed securities so.
If you have a street with ten homes on in 19 at a -- backed by Fannie and Freddie.
This proposal would touch one home on that street.
So you know what if you wanna just totally go out nationalize US housing market have government sees every single home.
We have that would stable express is needed but this is not going to do that -- sexy very very dangerous from right and if they weren't too.
By the home and -- that new mortgage you are saying.
Who would they sell that -- sell it to other private investors who would say hey I'm getting a great deal.
I'm buying this pool of mortgages and that are underwater but current so there's a pretty good chance.
The -- the housing market recovers that the value of that security.
Would rise because we have a track record and for that that occupant and a home pay bundling Edison trouble the first time -- securitization is a good thing securitization.
Spreads risk and it lowers the cost of -- lending for borrowers so that's the again that's another great point.
Because if this goes ahead in this precedent is set and private capital leaves the mortgage market.
-- that means they ultimately you won't have that competition.
-- and if you don't have private securitization will the risk is all going to be on taxpayers.
And you know we've been going through the results of putting housing risks on taxpayers for the last five years I don't think it's very pretty picture.
-- it's likely that one of these counties does something like this what are the chances of that I think it's pretty high pretty high -- pretty high I talked to the CEO of San Bernardino County.
And his view is well I gotta be seen to be doing something.
And you know what I'm not gonna be brow beaten by these bond investors they're just private investors I want to do something for my community.
-- again it it it misses the broader point.
That he's actually hurting his community by doing this because he's gonna drive private money out not just for now but for very long time to come.
Mary kissel with the wall street journal editorial board thank you very much thanks very story really.
Coming to thank our -- out to Chicago right now.
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