Is city's eminent domain tactic to help underwater borrowers dumb?

Richmond, Calif.’s ploy to provide relief to 626 homeowners who owe more on their mortgages than they’re worth using the threat of eminent domain to get the loans at a discount is “dumb,” says Bill McBride in a blog post on his economics and finance blog Calculated Risk.

“I haven’t written about the use of ’eminent domain’ to buy mortgages because it seemed like such a dumb idea I didn’t expect it to go anywhere,” McBride wrote.

Instead, public policies should encourage lenders, he wrote, to “cram down” or reduce principals to fall in line with home values and treat the balance as unsecured debt.

Source: Calculated Risk