Seizing mortgages by Eminent Domain? What do you think? The White House is Skeptical:
The county of San Bernardino and two of its largest cities, Fontana and Ontario, have created the requisite entities to initiate mortgage condemnations, though city and county officials say they haven’t decided on any formal course of action. The county’s chief executive, Greg Devereaux, said he learned about the program late last year from the head of the state’s housing department.
Proponents say they would serve a public purpose by helping residents shed debt loads that are restraining economic growth, while preventing foreclosures that are eroding the tax base. “We’re now six years into the crisis and public and private entities have not been able to solve it,” Mr. Gluckstern [chairman of San Francisco-based Mortgage Resolution Partners] said in an interview last month. “This is a balance sheet problem for homeowners, and if you want to fix the economy, you have to fix this problem.”
Investors, banks, and real-estate groups have cried foul, saying that taking mortgages through eminent domain might not be legal. Even if it is, they say it would introduce new risks for collateralized lending that would lead banks to require larger down payments or higher interest rates.
Full article: White House Skeptical of Plan to Seize Mortgages by Eminent Domain – Developments – WSJ.
Amherst: Seizing mortgages by eminent domain unfair to investors
Excerpt: A proposal in San Bernardino, Calif., that would use eminent domain to seize mortgages to help reduce the area’s massive negative equity does not adequately protect investors, analysts at Amherst Securities Group says.
In late 2011, San Francisco investment group Mortgage Resolution Partners proposed a program in which the local government would seize underwater mortgages at fair market value and restructure them, allowing the homeowner to stay in the home.
Like many areas across the nation, San Bernardino County is drowing in negative equity. Fifty percent of mortgages in the county are underwater, San Bernardino County Chief Executive Greg Devereaux says. The May jobless rate for the Riverside-San Bernardino-Ontario metro area was 11.8%, one of the highest for metros with 1 million or more people, according to the Bureau of Labor Statistics.
The Daily Ticker asks: Eminent Domain: Can It Fix The Housing Market?
"This is a program that's designed to help communities deal with underwater mortgages by using eminent domain to acquire the mortgages that underlie these houses," he says in the accompanying video. "The objective of the program is to keep [homeowners] in their homes. [We] use the power of eminent domain to take the underlying mortgage and then restructure it for that homeowner in a way that's much more appropriate given today's environment."
This controversial initiative has caught the attention of the mortgage industry and investor and bank lobbying groups including the Securities Industry and Financial Markets Association. Critics argue that using eminent domain to seize and restructure underwater mortgages would be costly to homeowners, make future mortgages more expensive, bring losses for public pension and 401(k) plans and could be unconstitutional. Gluckstern disagrees.
The proposal is "absolutely legal," he says. "The vast bulk of mortgages in this country are owned by trusts. Trusts that are run by trustees and services. Not by banks. It would be the trusts that would be giving up the mortgage and be paid fair value for it."
Whether Gluckstern's plan will be given the green light in California could be determined this summer. Gluckstern says his firm will submit its proposal to San Bernardino officials, and if accepted, the plan could go in to effect before year's end.
Barry Ritholtz of the Big Picture hates this idea:
"I hate this idea:"
Dr. Paul Price at Beating Buffett hates the idea too:
California Cities Considering (Legal?) Theft of Private Property
"All Americans should be very, very alarmed. Today’s Wall Street Journal ran a front page story on a proposal put forth by Mortgage Resolution Partners LLC as a ‘solution’ to the problem of underwater mortgages. When you read their PowerPoint presentation for comprehension it is clearly threatening to all commonly perceived rights of private property and free will….
"Here is their summary slide describing the program…"
"The essence of the plan is to force private owners of mortgages to sell them to Mortgage Resolution Partners LLC [MRT] under the guise of eminent domain. MRT would initially only ‘take’ mortgages that are underwater based on estimated market value but that are current on their payments [NOT in default]."
