There’s always something to howl about.

San Diego City Attorney Aguirre’s “Sanctuary” Best Left For Fairy Tales

San Diego City Attorney Michael Aguirre attempts to halt the flow of new loans, into San Diego , by calling a “do over”:

San Diego’s city attorney said on Wednesday he filed a lawsuit against Bank of America and its Countrywide unit to prevent the mortgage lenders from foreclosing on homes in the city, which he aims to make a “foreclosure sanctuary.”

City Attorney Michael Aguirre plans to file similar lawsuits against Washington Mutual, Wells Fargo and Wachovia in an effort to make the lenders negotiate with mortgage borrowers facing foreclosure.

“We would like to see San Diego become a foreclosure sanctuary,” Mr. Aguirre said.

Oh brother.  This is so stupid I don’t even know where to begin.  Foreclosure is an important part of a loan contract.  If a government interferes with the execution of that contract, then a precedent of interference will be set.  Two things can happen:

1- Lenders will need to assess the cost of the “foreclosure sanctuary” and build it into the cost of the newly originated loans.  Buyers will reject the new loans, priced far above loans made in Del Mar, and the City of San Diego housing prices will plummet even farther.

2- Lenders will, most likely, just ignore San Diego.  We saw it happen in Cleveland, about ten years ago.

I knew a shylock, back in Philly.  He worked the union halls.  He’d loan a guy a few hundred bucks, until payday, and make 30%  vig for the effort.  His default rate, for first -time borrowers, was extraordinarily high.  I asked him about his collection policy, visions of The Sopranos in my head. The “shy” didn’t like to get his hands dirty.

If a borrower defaulted, the shylock refused to lend money in that particular union hall.  He let his steady customers  enforce his collection policy.    If a bright borrower decided to alert the authorities, the shylock simply denied any lending activity, and took the loss.  Of course, he never lent in that union hall again.

Mr. Aguirre’s political stunt could lead to that “mob mentality” should lenders halt all activity in the City of San Diego.  Sellers, frustrated with the lack of liquidity, might exert uncivilized pressure on the defaulted (and protected) existing homeowners.

We really don’t need any more angry mobs in San Diego.  The laws are there for a reason, Mike.