>> the afternoon parade and other inauguration festivities on the c-span network. throughout the day we will take your phone calls and comments on facebook and twitter. our live coverage starts at 7:00 a.m. eastern on c-span, c-span radio, and c-span.org. next, a look at the u.s. housing market in distressed homeowners. panelists discuss using eminent domain so local governments can buy homes less than their mortgages and sell them back to the owners at a lower value. this is 1.5 hours.

>> thank you for coming. it is an interesting time for the housing market. i guess we could have said that any time in the last five years are so. things are changing a bit. after more than five years of declining markets, we seem to be doing somewhat better. home prices are going up. foreclosures are at a five-year low. on the other hand, we are still suffering from a serious overhang from the crisis. more than 4 million households have lost their homes through foreclosure. this has been bad for families, communities, state and local budgets. home price declines wiped out

roughly $7 trillion in household wealth, left more than 10 million families under water, and away more than their homes are worth. hard-hit communities such as las vegas in san bernadine know, more than half are under water. this is creating some significant problems. the air at a much greater risk of a foreclosure -- de are at a much greater risk of foreclosure. the borrower has no other commission to fall back on here.

we will be discussing more. we will reduce mortgage principal. we can seize this owned by private investors, right down the principal and refinance the loans that are at current market value. this is a quite a heated debate. local government and consumer groups will have a wait for finely deleveraging debt and avoiding unnecessary foreclosures. the question is whether this is the right policy to fix the problem. before we get to that, the team has grappled with the problem of under water mortgages for several years. last year we released the plan for reducing principal through shared appreciation.

we have cause on the finance agency to prevent servicers to reduce principal on loans owned by fannie mae and freddie mac. in the back we have these proposals and other materials we have produced on this subject. back to today. we have a terrific panel of experts. i am looking forward to hearing from them. raise your hands. he is the chairman of mortgage resolution partners, a firm using eminent domain and is in discussions with municipal governments across the country. prior to his work, he co-founded alternative asset firms. as well as the specialty financial reinsurer.

congressman brad miller is a recently retired representative from north carolina in the 13th district. during his five terms, he served as a leading champion for consumers and the fight against predatory mortgage lending. todd is the executive director of the american securitization form, an association for other stakeholders that is supposed to call for using eminent domain for mortgages. previously, he was an associate at at mckey nelson where he worked on residential mortgage securitization.

jim was previously the chief business of the sec at the national community reinvestment coalition. before that he served as senior vice president for planning and research at the fannie mae foundation. finally will be the director of housing finance and policy, and julia gordon. she'd manage a single family policy team at the finance agency. she previously served as the senior policy council. take it away. >> thank you. ok. with going to start questions to the panel and had a conversation up here. after a while we will open the floor to questions from the audience as well. i hope you're thinking about what you like to ask all of the folks out here.

we are just going to start with a general question. where are we in the foreclosure crisis? in particular, how big of a problem is negative equity and for whom? >> i think a lot of people think that it is behind us and we're driving forward. i would argue. it might be the number of about 4 million american families have lost their homes already. by almost any measurements they will lose their homes if we do not do something. there lots of consequences. there are families that are destructive and taken from their

homes. we are talking about three or 5 million more families, as many as 20 million more americans. when you are under water your behavior changes. as you do not spend as much money on anything. the only thing you consume more of is health care. the costs are significant. foreclosures cost hard dollars and soft dollars. there are property tax issues. the consequences are felt by all of us. >> what are some roadblocks to solutions? >> i do not know whether we have hit bottom are not. if something cannot go on

forever it will stop. some of the forces that are pushing down the housing market cannot go on forever. we have households about informing. this cannot go on forever. they're going to have to replace this. there is still a lot of downward pressure. there are tim million americans owe more on their houses. that means they cannot just sell their house if they get into trouble. and the cycle of foreclosure is causing equity loss, equity loss causing foreclosures is

something we have not broken yet. the impediments remain. problemd this kind of before. the great depression -- the bubble there was not a housing but the stock market. when times were that hard, they had in a foreclosure crisis and they did in the depression. a home owners loan corporation was a successful, according to arthurdivided bycenter, a historian -- according to arthur s. schlesinger is saved the middle class. they bought mortgages at a deep discount from the portfolios of failed banks. those were in the days before safety and soundness and accounting concerns. there were plenty of banks quite willing to sell mortgages for a

bird in the hand. so they bought mortgages at discount, which gave them room to negotiate and reduce the principal. even though they managed the agency more like social workers and then like lenders, when the agency finally closed down in it turned a profit. we know we can make this work. the mystery is why it has not happened now. mortgages, the separation between who owns them and who manages them is probably part of it. the safety and soundness and accounting concerns about not willing to recognize losses is probably part of it. the honest to god incompetence of servicers, because of the way they are paid. do not have enough resources to do the job is part of it.

but there has not -- the people who are affected, who aere the investors have not been in a position to cut a deal to limit their losseses. >> thank you. where do you think we are -- is negative equity a problem for the market or will the problem take care of itself? >> on the latter question, this might be the only time steven and i will agree on the panel. prefacing what may come forward. i do agree with steven. negative equity has been a problem for homeowners. it has been devastating to go from buying a house, putting a down payment down to not allowing money on the house, even if they they were to sell the house. -- to now owing money on the house.

to investors to put up money to lend it to the individuals, whether it was a the securitization process, the private-label mortgage, or for the american tax payer. there is $5.50 trillion mortgage debt is guaranteed by fannie, freddie or ginnie mae. if the underlying collateral is worth less than what is owed on the mortgage, it will not be positive for having let the money to them. all in all there has been a tremendous loss to the american economy and to the individuals that have borrowed the money. and certainly to the folks who have let that money, whether it is through the american taxpayer, the gse's, or the pension funds, the mitchell funds and the like who bought and owned private label mortgage-backed securities. to answer the first part of the question, where are we? that is where i would disagree with stephen. we are not heading towards the maelstrom of the storm by starting to come out of the

storm. as an example, at the opening mark it -- remarks, san bernadino was mentioned as one of the areas,the ground zero of negative home price appreciation. what we have seen there, just evaluating the number of loans in default in that county is that in in juen 2009, it was 31,000, and june, 2010, 21,000, june 2012, 12,000. over the last four years, the defaultse change and evolin has gone down 61%. that signals to me that we are not in the middle or going into the heat of the storm. that does not mean that that will make life any better for the person that is challenged to make a mortgage payment. it does not make life easier for

somebody who has -- it does signal that as a nation we are moving away from the center part of it and moving towards areas where we have more home price stability. even markets like phoenix, you have seen appreciation. it has spent 30% year-over-year through 2012 or you went from a market that was really going down precipitously and now is shooting up with that same .hilosopvelocity >> can you talk about this issue from the neighborhood? what is going on out there on the ground? >> maybe i can be the bridge builder between steven and tom to say that we are seeing improvements across all markets that is a very positive sign. the downside is that the damage has been so heavily concentrated in a handful of states and a

handful of communities have been so damaged that even though the numbers are looking positive for those neighborhoods that, they are still struggling. the amounts of underwater debt is contributing to low sales in stores, higher unemployment. and for those families that are getting into foreclosure because of a loss of income or because of the loss of a job, if they could find relief through principal reduction to save their home that would seem from a public policy standpoint to be a positive turn of events and would help to promote and stimulate that market even faster than the slow recovery that is experiencing, even in markets like san bernardino county. so i would say that i do not see us getting into an abyss. i think that part is over. but i do not believe we have reached the proof -- a point where we can say the markets are

recovering so we can walk away. the unfortunate part about this conversation is that we are looking at eminent domain which is probably one of the most extreme things that a public entity could do, which is the taking of private property when there are so many things that could be done and could have been done better not nearly as extreme to help to mitigate the foreclosure crisis. we look at things like principal reduction through the hamp program. fannie mae and freddie mac are not pursuing principal reduction. the dollars are already there. it would be a net cost of to the taxpayer and it would help to recover in committees like san bernardino. it is not happening. services have a lot more flexibility than they have pursued in order to modify the loans including principal reduction. a financial has been a leader. others have not followed their lead. there are also things like

bankruptcy protection. at a federal level, it was debated in congress, it would cost the american public nothing. it would allow households that are under financial distress to restructure the debt on their family home and keep it off. if you owned a luxury yacht or a rental property, you can restructure that debt, but you cannot if you have a moderate income. the fact that we are in this conversation is unfortunate because many things could happen before we would have to go to an extreme measure of eminent domain. >> does everyone agree, the assertion that principal reduction is what has happened? let's leave eminent domain until later in the conversation because it distracts people. does everyone agree the principal reduction is what we have to provide people underwater to get them to be

able to participate in our economy or not? >> i think principal reduction, particularly for borrowers, who have an ability to meet their mortgage payments, have not had the force, have not had a loss of jobs or income, -- have't had divorce, they the ability to pay their mortgage and are current on their mortgage as your plan had proposed, i do not think those are our corporate borrowers to go after a principal reduction because they have not signaled an inability or a life event that will cause them to go into default. >> so we should punish them for the fact they have been paying a proper way so that when we go and provide principal reduction, you're saying, you have been a good guy, so you do not get it. that guy has been bad, we do it to him. is that what you are proposing? >> i am not saying it will put them in the stockade because they are paying. what they are saying -- what i am saying is if they show no

signs of distress, they have an ability to pay debt markets. the borrower -- if they lose their job and they have the ability to pay it, every service surf should like to some kind of principle forbearance program for them. in the hopes that that borrower would be able to get a job. in the next 6 or 9 months and resume paying carry to say every borrower who is underwater, let's cut away their mortgage principal. that is a mess of disservice off to the $5.50 trillion the american taxpayer has lent out to fannie mae and freddie mac. but also to the private label security de bt that neutral funds have loaned to those borrowers as well. you cannot say that we should give away money to these types of borrowers just because they are unfortunate that they have gone under water. useful nk it would be to hear more about your proposal and about the issue so we can

get it on the table. >> so the first thing, i think it is important for people to understand that -- and tom made a good point of this earlier which is america's the bulk of the balance as tom pointed out are actually ensured by freddie and fannie. that has cost us as taxpayers a few hundred billion dollars so far for that guarantee. there is a small segment around 4.7 million loans that are called private label securitizations. when you hear about mortgage- backed security, about 4.7 million borrowers, about a trillion dollars as tom indicated. we focus on that segment, the p.l.s. segment because those bondholders, the investors in those securities do not have the benefit of the united states government guarantee on

their performance. they live or die on the fact that you pay your mortgage or you don't. because of that, the securities trade at market. they reflect the fact that there are huge problems in that community. i brought one slide in. right now is a perfect time to put the slide up. just to frame this. just so i can see it here. if that is ok. from one underage fannie mae's third quarter. this is the united states view of the p.l.s. sector with respect to the portion of the bonds they own. they own some of those bonds and under their rules they tell us what they think about the underlying mortgages and these are the numbers you want to look

at. fannie mae says there is about $28 billion on their balance sheet, exposure to mortgages in this sector. they expect a 50% default rate. this is before. going forward on their existing holdings. 50% default rate and when it defaults and goes into foreclosure, they expect a 66% loss under that mortgage. half the mortgages, 2/3 of the principal written down. it tells you fannie mae believes there are roughly 2.25 more foreclosures coming. we think fannie and freddie and the banks have other avenues. all the programs you talked about for reform and helping these homeowners. most of those programs are not eligible to be used in this sector. the p.l.s. homeowner has very

few options. our thesis is allowing these homeowners to write down the mortgages, you re-reduce the am of foreclosures and allow them to stay in their home. that's our objective. how do you do that? how do you write down the principal? they are owned by trusts. it would be great if we could go to the trustee or servicer who owns the trust and say you know, you're going to have 50% of your people defaulting and lose 2/3 of your money and by the way, your bonds already trade reflecting that. you have taken that loss already. why don't we allow the homeowner to stay in the house and simply write down their mortgage? the trustee and servicer cannot write those down. cannot sell them. there is a whole bunch of things they can't do.

they are stuffed in that trust. -- stuck in that trust. what is the way we can get that home mortgage taken out of that trust and put in the hands of someone who has a reason to want to help that homeowner. we looked around and decided the only way you could get that loan out of that trust was using a power that community has had that that was given to it in the constitution of the united states and handed down to the state constitution and that is the power of condemnation. i've said this before. i'm not as dumb as i look. if we could find any other way than using eminent domain, don't you think we would come up with another idea? there is no other way. that's how we got there.

a local community now can condemn that mortgage and take it out of the trust. by the way, pay the trust fair value. fannie mae will tell you what the fair value is. they have already done it right here. that's in essence a program that we have -- we're discussing with some several dozen communities around the united states. >> thank you, senator. is there really no other way? >> steve argues that there is an inability for servicers to write down principal on private label securitized loans absolutely false. writing down a principal has been increasing over time on private label securitized loans. there is no ability for a servicer of a fannie or freddie loan to actually write down. there is a big distinction there. second, he says that we, m.r.p., can't figure out a way

to get these loans out. it is because m.r.p. doesn't actually own the loan. what they are proposing at the core of its proposal is m.r.p. wants to take loans from somebody else. that is what eminent domain is all about. the person does not want to sell you those loans so you grab them without that person's consent. we'll come back to legal issues throughout the discussion here. sticking to the policy side of it, there is a reason you can't get out of the trust. the reason is the united states government, the u.s. department of treasury through tax law, does not allow those loans to be sold out. when you come back to the legal analysis figuring out whether m.r.p.'s proposal would violate interstate commerce, the answer is the loans are already regulated in these trusts. it does allow them to be written down in trust as long as the servicer believes that is in

the best interest of the investors. they would have you believe that the servicers in fact are not operating on behalf of the best interest of the investors. they are being duped by the servicer not to do the right thing on their loans. i have a very hard time going back to institutional investors who manage trillions of dollars of assets on behalf of pension earners going back to them and saying you're irrational. you don't know what you're doing. go tell those servicers to write down massive amounts of principal. that's in your best interest. if they thought that, they would be doing that. if someone loses their job and has negative equity, they would take a program that they have put into effect that is actually write down some principal and give them some shared

appreciation in those circumstances. if someone took out a loan and hasn't had any distress since then and is still able to pay their mortgage, what is the sense -- wipe away all of this underwater debt, that is better for those individuals. all the pension money and all the institutional money fund money that has been put to it would be wiped away. moody's did a study on this and said if you were to take the m.r.p. proposal and implement it nationwide, 30% of the value of mortgage backed securities would disappear overnight. since there is $1 trillion of outstanding mortgage-backed securities means $300 billion would be lost by funds out in the universe. that combined is much more than fannie and freddie has lost the american taxpayer, which is about $200 billion. >> that is absolutely the case

that servicers don't act in the best interest of the investors. i think the lack of the unity of interest between investors and servicers and trustees is one of the reasons that so many institutional investors are resigned from the membership of your organization because they think that that trust they use are not acting in their interest and their interest would be best served, if there were reasonable negotiations. they are certainly concerned about this proposal, but part of that is i don't think that the trustees can be counted upon to act in their interest in a condemnation proceeding. they won't fight for fair market value. they will throw in the towel because they have got nothing to lose. this is a screwed up system. >> to use a technical term?

>> that is actually is. i'm not sure if that is a legal or economic term. but if it's true that the constitution is not a suicide pact, mortgage and servicing agreements are pretty much suicide pacts. they do separate out from the investors, the management and the management has a lot of incentives not to modify mortgages, which would be in the best interests of the investors. you know, when a mortgage is forclosed upon, the losses are 50% for the value of the mortgage. more -- the estimates bounce around. it is obvious that investors would love to see logical reductions of principals so that homeowners with a mortgage on that house would be in a sustainable mortgage and they

would not have to foreclose and it is not happening. we can argue about why exactly it is not happening but clearly it is not happening. that was an advantage of bankruptcy, which you were for. i was for. i introduced the bill in the house. that got beaten back in the senate, defeated by the banking interests and that is the advantage of eminent domain. it is a government power that doesn't worry about who has got what interest and who has got what power? it is the power to take something for public purpose. property for public purpose. take it for public purpose at fair market value. you probably make money. that's why this business model actually works. i understand the concerns to investors that their interests will not be represented, but something has really got to

give. >> one of the questions that has come up with this proposal is that at least in the primary thrust of it targets homeowners who are paying their mortgage currently does that concern you at all? do you think that eminent domain should be used for homeowners who are in default or just to cut through for anybody? >> i think a phrase that both lawyers and economists like, it depends. you know i think where we don't want to be, which tom described earlier and actually steve as well is in a position of not modifying the mortgages of people who are performing because they have not shown that they are going to default and then not modifying the mortgages of people who are not performing because you don't want to reward them for their nonperformance. by the time you reward them, you don't have much left.

it probably does have to be tailored to the circumstances. probably specific whether a homeowner is able to pay this morning and likely default and lose their home to foreclosure and would they be able to perform on a mortgage for a lesser amount that would be a better deal for the investor than would foreclosure. >> i want to put a slightly different wrinkle on the table and ask you, in the past eminent domain is a power used in a ways that disadvantage communities of color and is there any concern about whether this is an expansion of the powers of condemnation and are there any concerns about that? >> i want to get to that because i believe there are real concerns about the use of eminent domain, but i just want to say first of all the idea that the servicers have been

acting rationally with respect to loan modification, really, i want to just come back to that for just a second. we would not have the settlement. we would not have o.c.c. concluding yesterday another multibillion dollar settlement if it was rational. it would be good if they were because we would have probably the end of this crisis at least two years ago. having said that, i believe there are concerns with respect to how eminent domain could be used in a circumstance depending on how the loans are selected, how the program is designed, it could be that individuals who actually need the assistance the least -- i mean need the assistance the least, which is tom's concern, actually get the benefit and

those who are struggling don't. i would say the program would need to be designed such that the highest priority would be people that experience some sort of financial distress such that the principal reduction allows them to remain homeowners. the second thing is depending on how the loans are selected. loans would be selected in non- hispanic white communities but not necessarily in lat even and african-american communities. it depends on housing types, etc. i think there are real concerns from pri perspective. mot necessarily from a race perspective but from a housing markets perspective, a clear title could be clouded significantly as soon as investors start to sue. there would be a lot of lawsuits initially with the first taking of a distressed loan and if that occurs, it is questionable whether in fact that house could be sold back to its original owner or rather the

entity that bias it has to hold it. i think there are a lot of concerns on this issue. >> eminent domain is one of the most commonly used government powers. there is nothing extreme or unusual about it. we would never build a straight road if we did not have -- it is one of the most commonly used powers. everywhere in america right now. some municipality is exercising eminent domain to take something for some public purpose at fair market value and in every state in america now, there is probably a jury deliberating on what fair market value is. this is not -- this has been around for a long time. the reason that eminent domain or taking as mentioned in the fifth amendment was not to give the power to government but to restrain the power, to make

sure when government took property, it did it for public purpose and for fair and just compensation. there are procedures worked out. we do this all the time. really. this is not unusual. if you went to a municipality lawyer and said we want to do it, he would not say i've never heard of that. let me look at the law books. they do it all the time. there are procedures to take it, to start to use it and to put to the side to be determined later in litigation what the value is. it is called the quick take proceeding. we worked this stuff out. we have done it a lot. we haven't done it specifically with respect to mortgages but we have done it with all kinds of other property. >> i have a comment.

i just want to comment on that because i totally agree, taking easement of 10 feet of property in order to widen a highway that is very different from charging whole neighborhoods to take whole areas. the history of eminent domain is one of the most distressing uses of public power in history. the entire infrastructure of urban renewal was based on the inappropriate use of eminent domain. it is not just in the past. the naacp testified two years ago to congress about inappropriate uses ranging from cities in california all the way to rhode island. there is a problem in the past. there has been a problem in the past. it remains a problem today. it depends on how they are used.

communities use it all the time quite appropriately. many use it inappropriately as well. >> any government power that has not been used unjustly when it comes to race. the homeowners loan corporation which i celebrated earlier it was one of the great trials of the new -- triumphs of the new deal, which it was. it was helping white homeowners and not helping african- americans. in fact, some say it began with the homeowners loan corporation. they were the first ones who said we will not modify mortgages in these neighborhoods. so we will not be able to take a step further as a nation if we only exercise government powers that have over the course of our history been used justly between african-americans and latinos and whites because none have been. we are not talking about taking property here. we are not talking about taking

houses to put in an elevated train or, you know, some of the things a robert moses did in new york and long island. we are talking about trying to preserve neighborhoods and trying to take mortgages so they can be reduced so the person who actually lives if that home can continue to live in that home and that that home is not going to sit vacant, boarded up with weeds knee-high. >> the debate really is the assumption will be that the home will be lost to foreclosure. for the last five years, the borrower has paid mortgage. they have been underwater through that whole time whether it is in san bernadino or phoenix or whatever else and to start with the assumption that foreclosure will happen on that home, you're assuming what will occur. >> somebody who is in a negative equity position is at far higher risk of foreclosure than someone who has equity in their home? >> far higher risk of walking

away from their commitments. there is no question about it and that is certainly a risk factor associated with a negative equity home but it doesn't signal in any way, shape or form that, that borrower has lost the ability to pay their morning. -- their mortgage. it doesn't show they lost their job or lost a spouse or they reduced their hours. all it shows is they are simply in negative equity. it may be 10% or 50%. >> that means if that borrower has some kind of a negative income event in their life they lose their job, they have a health crisis, there's death, divorce, disability happens, they have nothing to fall back on. they cannot sell that home. they cannot borrow against that home. >> and i think that is precisely when the servicer has to step in and engage in appropriate loan modification or loss mitigation. but if a borrower loses a $200,000 job and their best opportunity for getting another job is $50,000, just as an example, it may not be an

option for that borrower. >> is this working? i only have 100 things to comment on. [laughter] but i'm going to just pick three and the premise, the starting premise what has been characterized as m.r.p.'s program is not their program. these are programs developed by cities to protect their communities, for which we as an advisor work with that. it is very convenient for tom to call that position. i will make three general comments. there is so much to talk about. the first is the discretion between communities of color. anyone who thinks that this is not disproportionately affecting community s of color is just kidding themselves. we have managed to more or less wipe out all latino wealth in this country through this

crisis. concern about eminent domain and for short, it has been used historically. in this case, the housing crisis has leveraged against our communities of color. i have a lot i could say about tom's analysis which was flawed in many, many ways, but the one example he wanted to call moody's, that reputable institution that made all of these bonds aaa with a statement that if you adopted a program that m.r.p. recommended, we would see i think he put $300 billion there. just use logic for a second. our program calls on communities to pay the value of an underlying mortgage at fair value. if you pay fair value for something that is being carried by the way at fair value, the motion that there is a $300 million loss is very convenient. it is just flat out wrong and

moody's has been flat out wrong many, many times. the last thing i want to say and i think it is very -- i don't want to pick a fight particularly, but maybe i do. >> go right ahead. >> this crisis was more or less brought on by tom and his colleagues. that is really what happened, not tom personly. not individually but that factory that created securitization. by the way, i just want to make a comment now, they benefit by the continuing excess payments by homeowners who are underwater who continue to make payments on mortgages because whether they think they morally should continue or whatever the reason, that is a transfer of wealth from individuals who are under pressure and underwater to the investment community. it is inappropriate given the nature but most importantly, people want to take a quick look at what's happening to foreclosed homes and look at who the largest buyer of

foreclosed homes is becoming. it is not that first time home buyer who wants to get back into the market. it is in fact wall street. tom's colleagues. who are now buying these homes so exactly two things happen. one is returning ownership communities into tenant communities and we know what happens with the transient communities. more important, when the recovery comes, and it will, that benefit is going to rise not to the existing homeowners who have been thrown out but in fact to wall street and the aggregate. >> let's give tom a chance. >> now that the curtain and has been drawn back and truly see i'm the wizard behind the curtain manipulating a $12 trillion outstanding mortgage market, i'm a little a bashed to say yeah, it is me. a couple of things. first, fair market value. the legality of eminent domain

and what m.r.p. is proposing. not a single city has developed eminent domain program. what you hear about san bernadino developing a program has been constructed by m.r.p. why do you a joint powers authority? why does a county create this construction? the simple answer is because they need to create a special purpose vehicle. follow with me here? the county of san bernadino, if they start seizing mortgages it is a congressman indicated through this "quick take." what that means is they take the mortgage and decide how much to pay later. seems very convenient if you go with m.r.p.'s analysis, you are only paying 70% to 80% of the appraised value of the home. m.r.p. builds in this discount

for borrowers who are still current on their mortgage. so the joint powers authority is taking these mortgages at 70% to 80% of their value but not putting up the money. they are taking the mortgage and saying we'll pay you later and then m.r.p. through their program will then refinance those mortgages through f.h.a.'s. >> ok -- we -- >> i need to finish where i'm getting to is that through that quick take program, if it is determined later it wasn't fair market value, the joint powers authority can be bankrupted and no one wins in that situation. the pension funds and mutual funds who didn't get fair market value now all of a sudden have had their mortgages ripped off. >> i didn't practice i'm a small town lawyer and i actually

tried a quick take proceeding. a quick take condemnation and in fact, the condemning authority deposits with the court, usually after they try to negotiate with the property owner unsuccessfully, they deposit what they think the value is worth and then they take it and then the property owner can take that money and can still contest the evaluation and get paid more. now if they lose the valuation, they might have to pay something back, but they -- the condemning authority does have to pay something into the court to the property owner to take the property. >> just a few things. first at the risk of giving tom a heart attack, i'm going to agree with several of the things he said. he may not be able to go back to his office once i get through. i want to start with the point

that steven is making. i believe there is knowledge this proposal of eminent domain. i think there is real potential there. i think it goes beyond the individual loans that might be purchased. what it goes into is the servicers and investors recognizing if they don't make decisions to better modify loans that someone may take the decision from them. that could be much more powerful than number of loans that are actually purchased. the community has stepped up to the plate to do that. a pushback to stephen and where i agree with tom is if we pretend, not pretend, assume that there can't be negative implications simply because a program is in place and a particular set of households are in more distress, they are going to get more help, i think that is not a reasonable assumption.

the fact that african-americans and latinos need something more does not mean when the program is designed it will benefit them more. the borrowers have to be current in their mortgages. one might expect it was in african-american and latino communities that a disproportionate amount of latinos may be behind. there on its surface, we would only be given the real benefits to individuals from tom's point who need it from a policy standpoint but are not in immediate distress and not giving that support to the house holds that need it. that says to me the program deserves a second look. i think there is real only in the eminent domain purpose in this particular case, but i think if we walk into it assuming that the households that need it most are going to benefit the most, then we can

have every sort and manner of unfair and quail outcome. -- and unequal outcome. another thing i agree with tom as well, you won't be able to go back to your office. is the fact that you could have full neighborhoods targeted in which the house prices are substantially upside down. there is two steps to this process. one is the loan is purchased and second it is sold back to the original owner. what guarantees that loan is will be sold back to the original owner? if it turns out for some reason people of color. >> to clarify, no- >> no home is bought, no loan is sold back. one of the problems that we have is everyone assumes they know everything about what the program is. i don't know. i'll say this again. we work with communities to design programs that fit their needs. that address the issues of is

this current homeowners or delinquent homeowners? is it all homeowners? is it some homeowners? what do you want to do? do you want people to prequalify or qualify afterwards? we will lay out to you all the options that you have and you as a community to make sure some of these very issues get dealt with and figure out how do you bring this out to the community to eliminate many of the pitfalls there. this is not a one size fits all. this is individually designed by those communities. this won't surprise you. that is the logic of the conversation. >> a quick point about how bad foreclosure crisis and collapse of home values have been for communities of color. there are lots of studies on the effect of loss of net worth, household net worth. they have done one that has been published in the last

couple of weeks. there was an n.y.u. economic study within the last couple of weeks. a lot of the loss of value is actually in the neighborhood where there are foreclosures. it is having a home on your block or the next block that is vacant and boarded up and the weeds are growing. and that, you know, there is also all the foreclosures that are flooding housing markets generally, but specifically, a great deal of that, of the loss of value has because of foreclosures in neighborhoods. that has affected latino neighborhoods and african- american neighborhoods disproportionately by an enormous margin. n.y.u. found that the median household had lost 46% of their net worth, their life savings in the housing crisis, the last five years. that is a stunning number.

that takes us to the lowest number since 1969. we are really a different nation now than we were five years ago because of the loss -- there as has been a lot of discussion about income inequality and wealth is worse than income and equality. the loss is much greater in african-american and latino communities but in low-income neighborhood where is people dead own their homes, but there have been many foreclosures, the average loss of net household worth has been 91%. >> i agree with both jim and congressman miller, that we do need to target the borrowers in need. that's the key point of all of this debate. find the borrowers who are challenged paying their

mortgages. don't come up with a program and address folks who are not having difficulties paying their mortgage. let me pull the curtain back just a little bit on what he is saying about the m.r.p. program designed to meet the needs of the community. if that was true, m.r.p. in my opinion should be registered as a not for profit institution, but instead they are not. they are registered with the securities and exchange commission. their incentive and profit motive is to make money. that is not congruent with designing a program to meet the needs of the community. which is why their program has been designed to take borrowers who are current in their loans. of course those are the most valuable loans. they are the cherry picking of the loans. the borrowers who can pay their

loans. go find the borrower with the highest fico score but because they are under water, we will refinance them, redo them and now all of a sudden now you have a very profitable loan, m.r.p. in our own program document proposed to sell back to f.h.a. to make a fantastic profit. what they promised is 20% to 30% returns. if their program works and they are paying fair market value, how do they pay their investors 20% to 30%? >> just to circle back, you know, whether m.r.p. makes money or is a nonprofit, there are 30 some municipalities looking at doing some version of this right now. these municipalities are hurting. i want to ask this publicly. would you support changing the

bankruptcy code to prevent -- because if you say no to everything -- >> i propose doing this -- there are actually a lot of proposals doing this. a law professor at harvard wrote a piece, an op-ed in "christian science monitor" in december of 2008 or so. ncrc proposed doing this and i wrote an article in "new republican" in march of 2010 suggesting that treasury could use tarp funds and act exactly the homeowners loan corporation had done and not do this as a profit but as a way to help homeowners. >> a real quick point on just

to clarify my position. i'm not opposed to the in concept the use of eminent domain for borrowers who are upside down, who are current. i'm simply saying that the priority would be in my view for those who are already experiencing financial distress. when you get to those who are current there are other tests that can be put in place. there needs to be a lot more detail on the table before there is a vote of yes or no. for example, if you're paying 70% of your income to keep that mortgage current do you want to force the homeowner to go into default and wreck their credit score and in the process of doing that can't buy clothes, food, etc.? i think there are parameters that can be in place that prioritize in need. in need to me is not just a cutoff between i'm paying today. i'm not paying yesterday. >> can i just -- since the curtain keeps coming back.

i just want to say one or two things to make sure people have the facts in front of them, that's all. m.r.p. is a for profit institution. that's how problems often get solved by american entrepreneurship. we're not a pool of capital. we charge a fee. we charge a community $4,500 if we successfully help them keep their homeowner in their home. we have all of our costs associated -- that is a funny number. where did we get that number from? we looked around and it turns out that our federal government will pay that to a servicer to modify a loan that has no risk at all. we chose that number. we said the federal government has already done that and that is the deal. we'll charge it when a homeowner stays in their home.

there is a refinancing activity that has to take place. you have to basically if a community is going to condemn a loan, it has to pay for the loan, unlike get it for nothing which the congressman corrected. it is not exactly true. you have to put up the money in advance. turns out we have to raise that money. surprise, we're raising it from wall street. where else would you get that money? that is where it comes from. probably people who are members asf. they need to be given the return. we don't promise them anything. we say this is the program. we need to have your capital to be able to exercise this. what return will it require to get you to lend us the money? lend the community the money? that's where it comes from. the fact of what happens here, i don't mind of being accused of being a capitalist. >> i can't believe we're going to start and end this together.

i agree for people to put up capital they have to feel like they are going to get an appropriate return. if you start changing rules and go in after they put up the capital, and say we have never gone through any program to take individual mortgages, we're going to take it at what the court cities in fair market -- thinks is fair market value, which from your proposals every investor will agree, we're going to take that money away and decide what is best for them. we're going to decide where we think and what should happen with those mortgages and in the process, we're going to start to get into a debate of what to do with fannie and freddie who guarantee 90-plus% of every mortgage made in america. tore not going to be able get the taxpayer off the hook of paying those mortgages. the government just came in and

took these mortgages that we don't think are fair market value but now you're asking for more capital to originate more mortgages. i think it is it is illogical. we were doing the exact wrong things to scare investors away. i want to make this pricing argument. >> are we going to agree on what fair market value is? i'll take fannie mae's numbers. i'll use the government's numbers of the value of mortgages. that's what we told people we were going to do. it is not some kind magic. it is the exact numbers that fannie mae tells you these mortgages are worth. again, we'll get there. the court has to go through that. but that is the proposal. >> i do want to go out to the audience since all of these folks have actually come here in person, i want to give folks

a chance to ask questions. i have a few more too. but we'll try to take turns here. so -- and please identify yourself. >> my name is bill reagan. i'm an organizer with the union. in response to come we can change the rules. i would like to point out you all changed the rules. we bailed you out to save the economy. you just kept going on like always. not keeping up your part. we bailed you out not to bail you out but to save homeowners. we would like to change the rules a little bit to benefit us and suddenly that is problematic. i don't buy that. i think we need to start these issues in a lot of places because unless we do that, nothing is going to happen for us. thank you. >> question?

>> william cooper, mortgage bankers association. i would like you to expand about f.h.a. and the long-term consequences on the securities market if this goes forward. >> two issues. the first one -- what i think the crew has focused on is going after private label mortgage-backed securities. what would happen if they go after f.h.a. loans? most originate around a 3% down payment. when you talk about underwater mortgages, the number one person who should be focused on this in the world is the recently concerned -- who has a big pile of underwater mortgages with f.h.a. should we use that to go after

fannie mae and f.h.a. loans? second, i think your second question here is who would be the long term implications to the securities market? try telling a chinese investor who wants to put a lot of capital to work in the united states. pile on that lots of news characterizations of the united states government coming in and taking mortgages, taking their property and fixing them so that the m.r.p. is designed for the community need rather than the person who put the capital up. that is long-term disruptions to the markets. it makes it more impossible than it already is. >> the argument that at some point in the future we may do

this again, and we have never done in this the past, now we say we'll do it again, makes no sense at all to me. the reason we have never done it in the past is we have never had a foreclosure crisis like this. i don't think there is a lot of temptation for municipalities to do this absent a foreclosure crisis. why would you do this unless you really had a problem with declining home values and a cycle of foreclosures and that is like someone in the emergency room saying he was in cardiac arrest but i didn't want to use a defibrillator because in a few months he would come back and say did he shock my chest again? there is not a reason to do it unless we have circumstances like the ones that we have got. >> just one thing, don't worry about p.l.s.

we should look elsewhere. it's not even clear you could use eminent domain to loans that had fha guaranteed you. the issue is for local communities to take federal property. the threat, the big uh-oh, what would happen? it is not clear if the community would choose to do so, that that would be legal. >> i agree with you. it is for local communities to take federal property, you're indicating is potentially illegal. i 100% agree with you. private label securities, 10% are owned by fannie and freddie, which the fhsa is the conservator for fannie and freddie. you're taking federal government property which they have publicly already indicated they are very concerned about this and potentially may have to step in legally if you start taking federal property and

interfere with their conservatorship powers. >> i don't think it is all or nothing. fact of the matter is, they the develop a net present value calculations has been run off -- has been around throughout the foreclosure crisis if the loans are identified under the eminent domain program that show a net value beneficial to the investor and homeowner. those were the only loans selected for the program and that could be explained to any investor showing that you're not losing money, you're actually gaining money. this is what happens when you don't do what you should be doing. you end up with a lot of lawsuits. i believe there are ways the program could work in which the securities market would not be impacted at all and investors would say net present value, i understand that. that makes sense. the challenge goes into the details of how the program is structured. >> we have some more questions here. yes?

>> my compliments to c.a.p. and julie for putting together this panel. just one statement before ask my question. just one statement before ask my question. there are many investors including a.m.i. members. they support bankruptcy shared down depreciation and other solutions for borrows. i was surprised by some of the comments. can you reiterate how something like this proposal impacts millions of seniors and what are some of the unforeseen consequences? what sounds tempting and worth while but may need to be better understood by communities before they proceed because while we're helping a few, it may have an impact on many americans. >> i think that was really an

outstanding question because you put your finger on the issue of seniors. and seniors to me represent the population that could potentially benefit from this program and be current in their mortgage but being current in their mortgage makes no sense if they are already 70 years old and they have the possibility of never paying off that loan. adjusting their principal might be a reasonable thing to do. the details to me are where this eminent domain conversation should be. >> chris's question about seniors and unions is because they have an interest as homeowners potentially in trouble but also the pension holders or, pension funds so steven and thomas, you want to --

>> steven took a shot earlier at the securitization process. describe securitization at the simplest point is older americans, let's call them retiring police officers who have pension money through their 401 k's.the problem with the proposal is that someone who lend that money through the pension funds and mutual funds, you are saying, i want to help at home owner and do it at the expense of the pension funds. that i think is fundamentally wrong, particularly when you use the power.

if i might, slightly different interpretation. let's be clear, it it is those who are underwater in many cases. so we'll use the example, i'm with tom so that the pension fund, however that pension fund, you talk to the trustees they want to maximize the value but think about the constituents. now we have a devastating problem holding back our economic recovery and holding back construction jobs and now you a community that says we're willing to pay fair value for these mortgages. by the way, you own a bond that has part of a trust that has got 100 mortgages and maybe there is one or two and we'll pay you fair value as determined by the government for us that can turn that mortgage into cash and that allows us to keep that union member in their home to renegotiate with them. that's why the pension fund, in my opinion, should be enthusiastic about this and should tell their bond managers

the blackrocks and pimcos of the world, this is good for america and good for my return. >> i was going to say it from the perspective of the investor side again, if you're using net present value then fact it's a net positive. >> it's true mortgage investors have allies on a lot of issues, which is why greece did so much but got this one wrong. i think working families benefit in a couple of ways in that they are homeowners. the collapse in home values is affecting their net worth and life savings and in a dramatic way as we discussed earlier. second, they care about jobs. they are affected by the jobs crisis. a big part of the jobs crisis has been the effect on consumer demand from the loss of net worth and finally as unions hold pension funds, if they are paid fair market value, that is not

hurting them. that's what fair market value means. it means they are selling something or they are having a forced sale of something but they are not getting hurt. it should not hurt pension funds. i understand the concern that investors don't think they can count on, with some justification, don't think they can count on trustees and servicers to protect their interests and to advocate for fair market value with enthusiasm at the local level when it is challenged, when there is a condemnation and the it is coming out of our portfolio anyway, they don't care. the money goes straight to the investors. they don't care. they throw in the towel quickly. i understand that concern. i don't know how the fix it but i would encourage steve and the

other groups like his that are considering something like this. he is up here. his is not the only proposal like this. they work with you to try to make sure there is some way to reassure you that you are getting paid fair market value for the mortgages that are taken from the securitization. >> let me see if i can get an ally on the panel here or try to anyway or at least have a heart attack. do you think it is possible, appropriate for investors to trust that the government and court also get fair market value right for hundreds of billions of dollars? >> i think the reality is it goes into the details of how the program is designed. my concern is and steven has alluded to this. you don't really understand how

the program is designed. but to me that is not my problem. that is the problem. the program's design is where the rubber meets the road and if it is known a way it can be demonstrated but the only loans that would be eligible for purchase by a municipality, to me that is a different conversation than one that leaves this door open for the buying of loans where a individual is upside down and there is no other parameter except they are underwater. >> i want to get another question. >> fair market value is such a common legal concept in every corner of america now. juries are deliberating over fair market value. there are patterned jury instructions. there are ways to prove it. there are comparable sales. there is valuation based upon

income that it produces. this is not some strange concept. >> if you take the numbers that steven put up here. >> you don't have to take the numbers -- you have an economist who says this is my calculation and why, i'm sure it would be admissible. produce evidence of comparable sales and income and everything else that goes into proving value. >> what steven has done here today is say take these number numbers. this is what the government tells you is the real value of these mortgages. if you look at the price of outstanding private label security, they would depreciate 28% in this time. they have appreciated 28% since then. does that sound like a good deal? >> excellent argument.

[laughter] >> thank you. i will take this from a different perspective as a renter. i think you are overlooking a major group that do not have a pension. i think as you look at major cities even in alexandria where i live, i live in old town. the housing crisis, which developed because mortgages were given to people who could not afford to buy homes or keep their mortgage, affordable housing is an issue for all of the cities and towns that want to redevelop. it remains scary. are you saying, one, i think

freddie and fannie need to go away. two, if you need to change the guidelines for eminent domain -- take the case in rhode island -- change the guidelines and say we will take your homes because you cannot afford the war gauge and redevelop another community -- cannot afford the mortgage and redevelop another community, change the laws. one, did try that in alexandria. how ar e you addressing the laws? or are we saying everyone needs to be a homeowner? or is it government saying that it is ok to be a renter?

or are we not talking about that at all? thank you. >> let me say that there was a piece of that that i wanted to speak to. you got it something i was alluding to earlier. if in fact the program does not require that the owner, the previous owner, has the right to buy the home back, those properties, they can be purchased. that was the concern i was raising. i thought that got to your point about what if the government used its authority to buy the loans and say that by definition of this program, you are upside down by x percent. you cannot afford the loan so we will purchase it and use it for other purposes. >> for the most part, these proposals are not taking the

home, but the mortgage. the homeowner is still a homeowner and still owes the mortgage, but to a different person. >> i think all of the proposals have eminent domain on homes. and targeted on owners who want someone to buy the mortgage and negotiate with them. i think the case you are referring to is a connecticut case. i do not and that has a lot to do with the circumstances. the law is established -- laws are placed in every state. yes, they are. all manners of property interest, what is fair market

value and how to do it is in the constitution and in the fifth amendment to. just compensation. >> i went to try to get in one more audience rushed in. -- question. in the back. >> i go to your to washington university. the panel admitted that the housing was coming back a bit. i'm wondering if anyone has a sense to what extent does this come back reflect that this has displaced a lot of low income people perhaps for reasons that do not have anything to do with foreclosure or job loss but because of values in the neighborhood? >> from your question, you have some sympathetic and political views, but i am not sure that is what is happening right now. today extent that the fall is

slowing, the role of economics is that something cannot go on forever, it will stop. at some point, it will stop. there has been an enormous amount of damage. there is still a lot of pressures. there are still a lot of foreclosures in front of us. people who own a house and are buying a bigger house and using the equity, they do not have equity to use to build a bigger house. there is still a lot of rusher. -- pressure. it certainly will not come roaring back. housing has seen about a third of the national -- natural demand in the last 15 years. there were some access that we had to burn off and absorb from the hubble.

it comes from new household information. it comes from second homes to some extent. a comes with replacing dilapidated housing. i think that is the reason it slow down or than anything else. >> i was hoping we could take another last question. >> thank you. my name is john. i am one of stephen hosey partners. -- steven's partners. there was a challenge to talk price. tom, when shall we come sit down with your organization and talk rice? >-- price? >> we have had a few sit downs. i think we could probably sell tickets to those sit downs. [laughter] i think chris would like to be in the room as well. >> i want to take an actual

audience question. the person in the fourth row who i cannot see. >> thank you. this question --you mentioned that you're working with these communities -- communities. do you plan to extend that to the level of working with political leadership in these communities to develop tailored appraisal evaluation and methodologies that make the most sense for these communities? thank you. >> no. not tailored evaluations. the law specifies exactly what you do in the domain procedure. you make comparables are other things. by the way, john is not being facetious.

when you think about it, if we agreed on price, investors would think that they were being unfairly treated, which we can contend. this would make an enormous difference. we will go to the communities and look at the houses, but they are not customized solutions. >> i was kidding about the selling tickets part. the key question and differential that we have here on price is involuntary. it is police power of the government to take or still the mortgages that are below market price. >> last word? >> this is not an unusuall

government power. it is probably one of the most commonly used government powers. there were lots of procedures developed over centuries. they are determining fair market value and property damage cases and on and on. this is not that unusual. i think the reason for so much foster nation by the mortgage investors is that it is so "scr ewed up" that they cannot trust anyone to protect your interest. they were being paid fair market value to what a seller would sell to a willing buyer. i do not think there would be much of a problem. their concern is that the server serves, the trustees will not

protect their interests. if we can get past that, there should be some justice behind it. this can be a way to get control of the cycle of foreclosures and declining home values that we still have not broken. >> i would say that desperate times demand desperate responses. even though the market is stabilizing, many communities are hamstrung and harmed by extraordinary amounts of upside down debt. the eminent domain proposal is viable. i think it should be considered and discussed. if appropriately designed, it could have the huge impact on the market. i caution that while it is used in communities across the country, there are uses of country, there are uses of eminent domain