The markets for mortgages are like all other markets. On the one hand, we assume there is a willing buyer, a willing seller and supply meeting demand at an equilibrium point.
The mortgage market is anything but an Adam Smith paradigm. To the contrary, the market is dislocated at best but better stated, “malfunctioning”.
Purchasing mortgages at a discount for profit may offer an alternative, but the real alternative is to ascertain how we remove ourselves from the fiasco of a dozen years of financing and increasing the price of homes without true market demand.
What’s more, the market for liens is much more opaque than the market for houses, and as such MRP could probably make a colorable case that fair value for the mortgages it wanted to buy was extremely low. Since MRP would have all the important political relationships, the owners of the mortgage — especially if they’re just distant bondholders somewhere — would have very little ability to contest the valuation, and might end up getting paid much less than a genuinely reasonable price for it.
It seems to me that MRP is not adding a huge amount of value here — certainly nothing commensurate with the amount of money it’s likely to make. The real value is added by the use of eminent domain to buy the liens, and it’s the municipal government, rather than MRP, which has that power. So if anybody makes money from using eminent domain, it should be taxpayers: not some private-sector middleman.
If I represented the municipality of San Bernadino, I would respond to MRP’s proposal by giving them two choices. Either cut the city in to a very large proportion of MRP’s profits on these deals, or else force MRP to buy houses rather than liens. Both of those options seem fair to me. Hockett’s scheme, as it stands, doesn’t.