This is the third installment of HSH.com’s Think Tank series which features in-depth question and answers from the nation’s top real estate professors and professionals.
Thanks to mortgage rates near record lows and federal programs designed to target underwater borrowers, millions of American homeowners have refinanced their home loans to help reduce their mortgage costs.
However, not everyone has been able to qualify for these programs, leaving some communities with thousands of properties that are worth less than their mortgages. Some cities in the U.S. are taking a somewhat radical approach to refinance these underwater mortgages: eminent domain.
So far, Richmond, Calif., is the only city on the cusp of seizing private properties in order to refinance them.
We asked Raphael Bostic, Ph.D., director of the Bedrosian Center on Governance at the University of Southern California, Richard Green, Ph.D., director of the Lusk Center of Real Estate at the University of Southern California, and Peter Muoio, Ph.D., Managing Director at Auction.com to offer their perspectives on what impact refinancing mortgages through eminent domain will have on the U.S. mortgage market.
A: Richmond, Calif., is the only place doing this. If this is only happening in Richmond, it’s not a big deal for everyone else. Other places are threatening eminent domain because they’re tired of lender behavior. But Richmond is the only city currently claiming eminent domain. If this does grow into a larger issue across more areas, it will ultimately show up in the cost of mortgage lending. Underwriting will grow tighter, costs will rise and there will be an overall pullback in lending.