A coalition of 18 financial industry trade groups warned San Bernardino County that a proposal to use eminent domain to seize mortgage loans could make it harder for others to get loans.
BY IMRAN GHORI
Published: 29 June 2012 05:02 PM
A coalition of financial industry trade groups raised strong objections this week to a proposal being considered by San Bernardino County to use eminent domain to seize underwater mortgage loans.
In a letter to the San Bernardino County Board of Supervisors and Fontana and Ontario city councils dated Thursday, June 28, the groups state that the program intended to help homeowners could actually end up harming them.
“We believe that the contemplated use of eminent domain raises very serious legal and constitutional issues,” the letter stated.
The county and cities have formed a joint powers authority to explore ways to assist homeowners whose home values plummeted during the mortgage crisis.
Mortgage Resolution Partners, a San Francisco-based investment group, has approached the county with a unique proposal strategy that has not been tried elsewhere using condemnation proceedings to acquire mortgage notes.
The mortgages would be seized by the joint powers authority at current market values, allowing it to renegotiate lower loan payments with homeowners. Investors who hold the notes would take the loss on the difference between current market value and what was owed on the old mortgages.
According to the company, the program would not target bank or government-backed mortgages only securitized mortgages. Instead of being held by a single lender, such as a bank or a savings and loan, these mortgages are bundled together and sold to tens of thousands of investors who take a risk on their value.
Proponents say the proposal would aid struggling homeowners and help spur the Inland housing market, which has a foreclosure rate that is more than 3.5 times the national rate with one filing for every 179 housing units.
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