The latest false-hope-for-loanowners news story is San Bernardino County’s idea of using eminent domain to foreclose on mortgages. The idea is completely untenable, and it will not come to pass, but many loanowners hoping for principal reduction are latching on to this “hail Mary.” With as awful as this idea is, there is one bright spot I can embrace. If lenders really thought a local government body could force them to write down underwater mortgages through eminent domain, they would be much more concerned with the prospect of inflating another housing bubble. In the post Strategic default is moral imperative to prevent future housing bubbles, I argued strategic default was necessary to force lenders to recognize their losses and deter them from inflating future bubbles. If eminent domain were exercised by cities, it would have the same chilling effect.
Problems with the eminent domain strategy
In theory it sounds simple to condemn mortgages, and give the underwater borrower a new mortgage at current market values. However, in practice, such a strategy would be much more difficult to enact.
First, it must be determined that eminent domain of mortgages is in the public’s best interest. In a recent dipshit editorial in the New York Times, the author asked, “Can there be any doubt that keeping people in their homes constitutes a legitimate public purpose?” Well, actually there is some doubt on this point. First, this is interference in a private contract between two parties that has no bearing on the broader general public. Condemning these mortgages benefits the individuals who receive mortgage write downs at the expense of those who are due payments on these loans. There is no public good in that. Plus, any principal reduction is laden with moral hazard which is a detriment to the public good.
Second, the value of these mortgages is not the value of the underlying collateral. In an eminent domain process, the parties must agree on the value of the asset being acquired. If they don’t it goes to court, which most of these cases undoubtedly will. The banks hold these notes, both performing and non-performing, on their books at original book value minus any amortization. In an eminent domain proceeding, the lender will argue that is the value of the mortgage. If banks must abandon mark-to-fantasy accounting on their non-performing loans and must mark these loans to market — something a successful eminent domain proceeding would force to happen — then the losses to banks and investors will be staggering. Most of the banks will be proven insolvent.
In the case of performing loans, the situation is much more difficult because the banks can rightfully argue the loan is still worth its full face value. After all, the borrower is still paying as agreed. The value of that note is face value if the borrower continues to pay until prices recover. If the city starts an eminent domain proceeding on a performing loan, they will be forced to pay full face value for the loan, then they will be the bagholder if the borrower defaults.
Think what happens then if the city uses eminent domain on non-performing loans and gives those borrowers principal reduction and fails to acquire any performing loans. This would create a huge incentive to strategically default. Basically, any loanowner who quit paying the mortgage would get principal reduction and any loanowner who kept paying would get nothing. Does the city want to buy every mortgage in town? Once this got rolling, they would have to because everyone would quit paying to get the debt relief.
What happens to the property if the delinquent borrower whose mortgage the city just bought does not want to make a deal? The false assumption behind this plan is that every underwater loanowner wants to stay in the property and pay a mortgage. What if the former loan owner doesn’t want to accept the city’s new terms for the loan? Will the city then foreclose and boot them out like the banker would have? What will the cities do with the homes they acquire this way?
Third, the ability to use eminent domain gives the city the opportunity to play the real estate cycle for its own benefit. What if cities start using this to acquire vacant houses or offices? The city could buy up the distressed properties to profit from the rebound. Is this something we want cities doing?
Eminent domain as bubble deterrent
If lenders faced the risk that they may be forced to write down principal balances in the event of a price drop — something the precedent of using eminent domain to acquire underwater mortgages makes real — then lenders would adjust their lending practices going forward. The first thing they would all do is raise their down payment requirements. Since lenders all know 30% to 50% declines in price are possible, then they will start demanding 30% to 50% down payment cushions to protect themselves from potential losses. The only loans with smaller down payments would be government guaranteed loans where the taxpayer makes up the difference for a loss caused by an eminent domain action. The jumbo market would be dead, permanently.
The positive thing lenders would do is to carefully research what causes housing bubbles and enact real changes to prevent them. The bottom line is that prices don’t decline 30% to 50% if prices don’t become grossly inflated. The best thing lenders could do to protect themselves is to determine the cashflow value of the property. If lenders knew they could take the property back and rent it for enough to service the payment, they would have some assurance the property was not overvalued. Of course, this would greatly curtail lending, which isn’t what lenders want, but it’s lender air that inflates bubbles. The fear of eminent domain would go a low way toward preventing the next housing bubble.
Eminent domain as a foreclosure fix
San Bernardino County’s plan to help the hard-hit housing sector should prod lenders to do more.
July 09, 2012
Property values have fallen so sharply in San Bernardino County that nearly half of the homeowners with mortgages owe more than their houses are worth. Hoping to aid at least some of those “underwater” borrowers, the county is considering a novel plan to use venture-capital dollars to buy and refinance their mortgages. The plan’s authors say that homeowners would end up with less debt and the county and its financial backers would make a profit — all without the taxpayers spending a penny. The losers? Supporters say there would be none. We’re not so sure. …
A free lunch, right? Anyone who says nobody losses is a disingenuous liar. Someone has to lose. In this instance, it’s the holders of mortgage notes who are forced to take massive write downs.
To avoid encouraging people to default, the relief would be available only to borrowers who’d remained current on their payments.
This strategy does deal with the strategic default problem, but it runs squarely into the valuation problem. The performing notes are worth considerably more than the underlying collateral, and any judge is going to agree with the banks on this point. The city is not going to acquire performing notes at bargain prices using eminent domain.
It also would be offered only for homes worth at least 15% less than the amount owed, which are the ones most likely to go into foreclosure in the future.
The people who recklessly HELOCed themselves to max get a break, but the more prudent borrowers get nothing. That makes sense, not.
Notably, the new loans would be larger than the “fair market value” paid for the old ones, enabling Mortgage Resolution Partners and governments to profit from each seizure.
So the cities are going to make a profit by stealing from the banks? Only if they acquire the notes at a very low value, and that isn’t going to happen. If San Bernardino or any other city tries this, the first court cases to establish market value of these performing notes is going to blow these cities out of the water.
Although governments have used it in the past to seize all kinds of property in the name of the public good, eminent domain remains a drastic step that, when asserted in a novel way, can send shock waves through a market.
You think?
That’s one reason the local officials who’ve talked to Mortgage Resolution Partners haven’t yet signed onto its plan. On the other hand, they have been waiting years for the banking industry and Wall Street to respond more effectively to the foreclosure crisis, and their patience is understandably wearing thin.
We have all been waiting for the mortgage industry to respond more effectively. They need to ramp up their foreclosures and clear out the squatters so we can get back to a normal market.
Lenders who still own the mortgages they issued are starting to offer meaningful help to troubled and underwater borrowers, but investors who purchased packages of loans on Wall Street are hindered by securities contracts that make it extremely difficult for them to write down individual loans, according to Cornell University law professor Robert C. Hockett, a supporter of the eminent-domain plan. Seizing underwater loans from those complex securities would let local governments do what investors haven’t been able to do for themselves, which is minimize the foreclosures that are reducing the value of their securities.
The foreclosures would not reduce the value of these investors securities near as much as being forced to take a hefty write-down will. What professor Hockett fails to recognize is that these lenders and investors don’t want to write down these individual loans. They don’t perceive giving away money as helping their cause. It doesn’t. It benefits loanowners at the expense of these investors.
The trade groups that represent investors and lenders aren’t buying that argument. They contend that seizing securitized mortgages would spook investors, drying up the supply of money for new mortgages.
These trade groups are right. The eminent domain plan adds a new layer of risk with the potential for huge losses.
Their warnings may very well be exaggerated, but it would be pointless to implement the Mortgage Resolution Partners plan if every use of eminent domain drew a lawsuit.
And every eminent domain action will draw a lawsuit. The city is trying to seize an asset for far less than it’s worth. Why wouldn’t that draw a lawsuit?
That means county officials will have to mollify the objectors before moving forward. They also have to make the case that reducing the risk of foreclosures justifies seizing loans regardless of whether the borrowers are capable of paying them off — an approach that raises tough questions about fairness.
Moral hazard is more than a “tough question.” Moral hazard is the central issue in housing bust.
Finally, they need to show that it’s appropriate to use eminent domain to generate profits for one group of investors (and local governments) at the apparent expense of another group of investors.
And how will they prove that one?
Ideally, the county’s deliberations will prod investors to do much, much more than they’ve been doing to avert costly, needless foreclosures and eliminate the overhang of uncollectable debt that’s holding back the economy. If they don’t, however, they shouldn’t be surprised if hard-hit counties such as San Bernardino take the matter out of their hands.
The author of this LA Times editorial has postulated two contradictory solutions. Eliminating the uncollectable debt overhang is certainly necessary to fix the economy; however, foreclosure is the means of accomplishing this task. There are no “costly, needless foreclosures.” There are necessary foreclosures, and the longer we delay them, the longer our economic malaise will continue.
Should Ponzis be eligible for the principal forgiveness program?
Another hidden false assumption of the various principal reduction bailout programs is that all the borrowers who need this help were first-time homebuyers who bought at the peak. This is demonstrably not true. Many, if not most, of these peak borrowers were Ponzis who started with a small mortgage and withdrew hundreds of thousands of dollars in free spending money. If we reset their mortgages, what have they learned? What have we all learned? Who will borrow responsibly in the future? Anybody?
- The former owner of today’s featured property paid $392,000 on 6/1/2001. He used a $350,000 first mortgage and a $42,000 down payment.
- On 2/21/2003 he refinanced with a $452,000 first mortgage.
- On 3/11/2004 he refinanced with a $575,000 first mortgage and obtained a $25,000 stand-alone second.
- On 2/21/2006 he obtained a new $185,000 stand-alone second.
- On 3/7/2011 he got a private loan for $53,875 from a someone who probably lost all his money because he was served with a NOD on 7/8/2011.
This guy extracted $410,000 from his house. How would you feel about the city of Huntington Beach taking the first mortgage on this property in eminent domain and giving him the chance to Ponzi borrow another $400,000? I don’t think that serves the public good. Do you?
Huntington Beach Overview
Median home price is $503,000. Based on a rental parity value of $606,000, this market is fairly valued.
Monthly payment affordability has been improving over the last 12 month(s). Momentum suggests improving affordability.
Resale prices on a $/SF basis increased to $316/SF to $319/SF.
Resale prices have been weak for 12 month(s). Price momentum suggests weak prices over the next three months.
Median rental rates increased $45 last month from $$2,429 to $$2,475.
Rents have been slowly rising for 12 month(s). Price momentum suggests slowly rising rents over the next three months.
Market rating = 4
Proprietary OC Housing News home purchase analysis 
17051 MALTA Cir Huntington Beach, CA 92649
$649,900 …….. Asking Price
$392,000 ………. Purchase Price
6/14/2001 ………. Purchase Date
$257,900 ………. Gross Gain (Loss)
($31,360) ………… Commissions and Costs at 8%
============================================
$226,540 ………. Net Gain (Loss)
============================================
65.8% ………. Gross Percent Change
57.8% ………. Net Percent Change
4.5% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$649,900 …….. Asking Price
$129,980 ………… 20% Down Conventional
3.67% …………. Mortgage Interest Rate
30 ……………… Number of Years
$519,920 …….. Mortgage
$120,388 ………. Income Requirement
$2,384 ………… Monthly Mortgage Payment
$563 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$162 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$3,110 ………. Monthly Cash Outlays
($377) ………. Tax Savings
($794) ………. Equity Hidden in Payment
$157 ………….. Lost Income to Down Payment
$182 ………….. Maintenance and Replacement Reserves
============================================
$2,278 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$7,999 ………… Furnishing and Move In at 1% + $1,500
$7,999 ………… Closing Costs at 1% + $1,500
$5,199 ………… Interest Points
$129,980 ………… Down Payment
============================================
$151,177 ………. Total Cash Costs
$34,900 ………. Emergency Cash Reserves
============================================
$186,077 ………. Total Savings Needed
——————————————————————————————————————————————-
We're sorry, but we couldn't find MLS # S703691 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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$995,000 16962 LOWELL Cir |
0.11 miles 4 bd / 2.5 ba 2,400 Sq. Ft. |
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$931,000 4552 WELLFLEET Dr |
0.32 miles 3 bd / 2.25 ba 1,927 Sq. Ft. |
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$910,000 4172 TRUMBULL Dr |
0.35 miles 3 bd / 2.5 ba 2,640 Sq. Ft. |
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$1,475,000 4491 OCEANRIDGE Dr |
0.37 miles 4 bd / 3.5 ba 2,732 Sq. Ft. |
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$979,000 17272 WAREHAM Ln |
0.45 miles 4 bd / 2.5 ba 1,927 Sq. Ft. |
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$1,888,888 17011 BOLERO Ln |
0.59 miles 4 bd / 2.75 ba 2,257 Sq. Ft. |
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$895,000 16411 WIMBLEDON Ln |
0.75 miles 3 bd / 2.5 ba 2,591 Sq. Ft. |
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$1,079,000 3880 MISTRAL Dr |
0.84 miles 4 bd / 2.5 ba 2,379 Sq. Ft. |
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$865,000 5311 WISHFIELD Cir |
0.85 miles 4 bd / 2.5 ba 2,272 Sq. Ft. |
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$1,975,000 16651 CAROUSEL Ln |
0.85 miles 3 bd / 2.5 ba 2,426 Sq. Ft. |
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Speaking of San Bernardino
San Bernardino seeks bankruptcy protection
By Phil Willon, Los Angeles Times
July 10, 2012, 11:17 p.m.
San Bernardino on Tuesday became the third California city in less than a month to seek bankruptcy protection, with officials saying the financial situation had become so dire that it could not cover payroll through the summer.
The unexpected vote came at the suggestion of the interim city manager, who said the city faces a
$46-million deficit and depleted coffers.
“We have an immediate cash flow issue,” Andrea Miller told the mayor and seven-member City Council.
Mayor Patrick Morris called the decision, passed on a 4-2 vote, a “stain” on the city. But he said the only other option was “draconian cuts” to all city services, including the police and fire departments.
“It means the bills will be paid,” said a dejected Morris, who is not a voting member of the council.
The city’s fiscal crisis has been years in the making, compounded by the nation’s crushing recession and exacerbated by escalating pension costs, lucrative labor agreements, Sacramento’s raid on redevelopment funds and a city reserve that is tapped out, officials said.
Miller told the council that the city faced major deficits for the next five years.
The deficits remain even after the city negotiated $10 million in concessions from employees and slashed the workforce 20% over the last four years.
The expected bankruptcy for the city of 209,000 residents is certain to heighten concerns about the fiscal forecast for other struggling California cities, which have been slashing jobs and services as tax revenues have declined during the prolonged economic slump.
San Bernardino “is still facing the possibility of insolvency due to a variety of issues including accounting errors, deficit spending, lack of revenue growth and increases in pension and debt costs,” according to a budget analysis prepared for the council.
“The city has reached a breaking point and faces the reality of deficient cash on hand to meet its contractual and debt obligations,” the report said.
City Atty. James Penman said city budget officials had falsified documents presented to the mayor and council for 13 of the last 16 years, masking the city’s deficit spending.
“For the last 16 years the budget prepared for the council showed the city was in the black,” Penman said, not naming those allegedly responsible. “The mayor and the council were not given accurate documents.”
Morris was taken aback by the comments, saying this was the first time he has heard of the allegations.
City Hall was packed for Tuesday’s emergency council meeting, which had been called to discuss San Bernardino’s bleak finances. Bankruptcy was expected to be discussed as one option but an actual vote to file was not anticipated.
About a dozen residents urged officials to protect services for the underprivileged, libraries and public safety.
Kathy Mallon, 57, who has lived in San Bernardino for a decade, blasted the city’s elected leaders for allowing the financial crisis to grow unabated and wasting millions of tax dollars on transit projects and other non-essential services. Still, she urged them to do everything possible to avoid filing for bankruptcy.
“This is lose, lose, lose all the way around. Residents will suffer. Businesses will suffer and city staff will suffer,” Mallon, a member of the city’s senior affairs council, said before the vote. “We elected you to handle this, and I do not want to see the outcome decided by a bankruptcy judge who has nothing at stake.”
Seasonal house price rally widspread
National home prices saw both quarterly and yearly gains in June, and all four regions across the U.S. posted quarterly increases, according to the Home Data Index (HDI) released by Clear Capital Tuesday.
Home prices rose by 1.7 percent in June from the previous quarter and a year ago, and growth is expected to continue into the second half of the year at a rate of 2.5 percent, Clear Capital reported.
Broad-based regional gains and expanding progress are reasons for the current gains and expected future growth.
Out of all four regions, the West saw the greatest quarterly increase at 3.5 percent, followed by the Midwest (1.2 percent), the South (1.5 percent), and the Northeast (0.8 percent).
“June home price trends provided further evidence that housing has turned the corner, with the momentum of the recovery picking up speed,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital.
Villacorta noted that even the Midwest started to catch up with the other regions, shedding the drag of recent declines.
With its 1.2 percent gain in June, the Midwest saw the greatest quarterly improvement after posting a 2 percent quarterly loss in May.
The West was also notable due to the region’s gains across all price levels as demand outpace supply for the region. Clear Capital explained in a report that recovery generally begins in lower priced segments for most markets, but the West is seeing price increases in higher priced homes.
Out of the top 50 metros areas, 7 saw quarterly price declines in June, but only four reported declines greater than 1 percent.
The 43 metros that posted increases averaged gains of 3 percent. Among the metros that saw values pick up, 10 experienced price growth greater than 5 percent.
Phoenix was highlighted as a market with consistent growth over the past 10 months. Quarterly growth for the metro was 8.7 percent and annual gains were 20.4 percent.
For the year, Seattle is expected to surpass all other markets, with prices projected to increase by 14.4 percent by the end of the year, the report stated.
“Looking forward over the rest of 2012, we expect to see national, regional, and most metro markets improve by varying degrees. And while it’s encouraging to see broad-based advancements coupled with positive forecasts, we remain cautiously optimistic. The current strength in housing fundamentals remains vulnerable to domestic and global economic challenges,” said Villacorta
Housing and demand destruction
The idea behind this article is that higher prices for investors in the distressed housing market will turn off investors from purchasing additional investments. This actually decreases demand and then there are very few sales.
When Foreclosure Supplies Fall, the Bottom Falls Out of Housing
Published: Tuesday, 10 Jul 2012 | 1:04 PM ET By: Diana Olick CNBC Real Estate Reporter
Growing activity in the spring housing market brought new growth in home prices, but those gains are growing ever more precarious because they are dependent on low-priced, distressed properties.
While prices in the past three months rose 1.7 percent on a national average from a year ago, according to a report from Clear Capital, the biggest gains were out West, where foreclosures and short sales are often the majority of a local market’s activity.
In Minneapolis, Minn., for example, 35 percent of home sales are foreclosures; prices there rose just over 13 percent from a year ago. The same in Columbus, Ohio where prices rose 14 percent, given that nearly 34 percent of sales were of foreclosed properties.
While foreclosures brought home prices down initially, they are now driving them up because there is so much demand from investors and first time buyers, looking for bargains. Supplies of these cheap homes are also dwindling, because banks are still working to modify many troubled loans, and states that require a judge in the foreclosure process are still facing a huge backlog.
The poster child for this new dynamic is Phoenix, Ariz. Prices there are up a whopping 20 percent from a year ago because so much of the market was foreclosures. They used to make up more than half of all sales, but now they’re down to about 23 percent because there are just not that many foreclosures left to buy. Investors honed in on the market, buying properties in bulk and putting them up for rent. Some investors are already cashing out and selling them, but not many.
Too bad for recent buyers (speculators and 1st-timers)….. the current, biggest bubble of all is in the money.
When the carry-costs of any kingdom far exceed its output, ruination ensues, and evidently expands…
Overall rank….
2011: 32
2012: 40
http://www.cnbc.com/id/46414924
California is rated lower than Alabama.
There’s a joke in there somewhere.
Funny ’cause we’re going ahead with our “Fast Train to Nowhere” in California’s Appalachia (Central Valley).
Does this mean Ponzis are the root cause of city bankruptcy? How about the fraudulant accounting? I swear forensic accounting is a lot of hooey and amounts to judicial thuggery, and whitecollar crime is largely ignored by the media, so that the accounting firm responsible is glossed over. Cut that out. Are we so dumb? Who is the major accounting firm in San Bernardino? Does nobody know? I bet I can find out a list of accountants over there as long as my arm in 3.25 nanoseconds.
The city government spent the housing bubble inflows as fast as they came in, and when prices cratered and revenue declined, they couldn’t pay the bills. So you could say the Ponzis caused it.
Update on a another issue:
Diana Olick @diana_olick
CA governor will sign “Homeowner Bill of Rights” into state law today. Prevents dual tracking foreclosures/modifications.
More opportunity for delay if the banks want to take advantage.
If eminent domain was in fact implemented by a county, would the resultant retrace of prices to market value trigger a domino effect in adjacent counties via the
“substitution effect”?
Example: If San Bernardino County went forward with such a scheme, would not mean prices also decline in Orange County also due to price substitution?
If such an outcome proved true, then it would seem that it would take only a few “strategic” counties implementing eminent domain to bring the whole house of cards down.
Also, I wonder in such a scenario if Orange County would/could sue San Bernardino county to prevent eminent domain in their own county?
The eminent domain strategy is designed to force mortgages to get written down to the current market value of the house. This won’t impact prices, so the effects you describe won’t come to pass. However, if the idea were implemented, it would surely spread from county to county, particularly in the hardest hit areas. Shadow inventory would be expunged.
Uh… the whole ‘house of cards’ is coming down simply because the ‘fiat’ system homes are priced-in is faith-based.
IMHO: I’ve seen how the courts rule much more favorable in eminent domain cases to business than to homeowners and churches. When there is a “taking” from a business lost revenue is taken into account. Since the banks have been legally accounting the non-payments as receivable (revenue), the talking musts make the bank whole for this lost revenue and possible the expense of generating a replacement. I see the banks wanting the “taking” of their non-preforming loan, a bunch of liabilities. The banks will be free of these junk non-preforming loans. Too bad the new owners of the non-preforming loans will be the taxpayes. It’s like getting taken twice or maybe 4 times by then.
IR, If truthfull accounting is used and the loss recognized, the banks would become insolvent and you know they are too big to fail. Both parties are dead set against nationalizing the banks. Too bad the parties are not dead set agaisnst have the banks owning the government and Federal Reserve.
Yes, preserving the illusion of solvency will likely kill any plan to use eminent domain on mortgages. The banking industry owns our government.
If the banks can maintain the illusion during a taking, the taker will need to buy the illusion. The illusion will die in the light of day after the taking on the backs of the taxpayers.
The questions for most salary workers are how to preserve their savings and how to keep ahead of inflation. We don’t have a powerful and spendthrift uncle to bail us out and enrich us.
I want to thank you for letting me post here and sometimes rant. I know CA public teachers union owns a lot of the vacant land out in Mojave desert and I I understand they are the largest union in CA now (and http://finance.yahoo.com/news/california-public-employees-retirement-system-154500811.html) and thats great. But I heard on KNX 1070 at 2:10 pm some school board is sueing Bank of America for fraudulent securities. Ha ha thats rich. As far as Mojave desert land, well, I don’t think its worth much unless it has tortouises on it. Back in “94 they said it was worth $100/acre.
Are they gonna get B of A to reimburse them for fraud?
I know my aunt is paying off her house on the water in Newport Beach at the astonishing rate of $10,000/mo. from her teacher’s retirement benefits. Wow. Yeh, I don’t think much of unions. And the teacher’s union is in thick w/ aflcio, too.
Finally, San Bernardino RE has bit the dust, but it is stable @ 2001 prices that look like a bell curve after the rise and fall of 2006. I told my girlfriend to buy a house w/ adj. rates, but I know its riskier after 2014. She’s renting rt now in Rancho Cucamonga. Boy it is hot there. and expensive! and cheap construction! K.
Aren’t a whole lot of those mortgages owned by the GSEs? San Bernardino County using eminent domain against a creature of the Federal government? Good luck with that, lads. Can’t say you lack pluck.
On the other hand, given that SBC is going into bankruptcy, maybe this is just a PR stunt to try to soften up the jury in case some of the SBC officials end up doing the Robert Citron perp walk after the bk judge takes a look at the books.
I think the county has already stated that the program won’t affect GSE loans. Marbury vs Madison would make it easy for the GSE’s to win that case.
[...] of the mortgage backed security. This will increase costs and mortgage rates. However, it would prevent the next bubble since lenders would tighten up their requirements. Eminent domain of mortgages stretches legal power of [...]