According to the Los Angeles Times, cities in San Bernardino and two other counties have a great idea to relieve the suffering of homeowners whose homes are underwater- worth much less than the mortgage they hold on them. The clever plan is for the city to confiscate the property using ‘eminent domain’ laws, and then return it to the bank with the understanding that a new loan to the current homeowner would be made at the current value of the house. Sounds just peachy, right?
In reality the bank is also an owner of the home. True, they are an ‘evil corporation’, but they own the home nonetheless.
This makes me wonder why the government is so intent on destroying the banking industry as we know it. Surely there are some entities dreaming of a world where all loans are held by the government. And when the government holds all loans, they will ultimately have the power to control all loans given, and be the judge in whether or not a certain loan (or type of house, boat or car) is appropriate for you.
But the point I’d really like to make is regarding the importance of contracts in our free society. The ability to enter into a contract, and to have it be honored by the law and upheld by the courts is what separates us from third world banana republic countries. When contracts are no longer upheld, or they are able to be dissolved for some motive popular to the people in charge, we are one step closer to a ‘might makes right’ system of government.
Cornell Law Professor Robert C. Hockett, advisor to Mortgage Resolution Partners, the designer of the proposal, does not see it that way, declaring “This is actually a pro-market solution”.