By Andrew Edwards, The (San Bernardino County) Sun
Posted: 09/10/2012 11:23:19 AM PDT
Updated: 09/10/2012 08:25:26 PM PDT
Lt. Gov. Gavin Newsom on Monday asked for a federal investigation of Wall Street figures he accused of colluding “to restrain trade and to redline communities” over opposition to a controversial proposal to use eminent domain to prevent foreclosures in San Bernardino County.
“I am most disturbed by the threats leveled by the mortgage industry and some in the federal government who have coercively urged local governments to reject consideration of any proposal that would exercise the powers constitutionally granted local governments to use eminent domain to help stem the intractable mortgage crisis in America,” Newsom wrote in a seven-page letter to U.S. Attorney General Eric Holder.
The Justice Department did not have a response Monday. The Securities Industry and Financial Markets Association, a Wall Street trade group that Newsom singled out for criticism in his letter, declined to comment.
Newsom’s letter asserts several financial services groups intend to retaliate against any communities considering eminent domain as a foreclosure prevention measure. His office clarified Monday that the governor is asking for an investigation of SIFMA, its members and anyone else who may have violated the law
The lieutenant governor’s letter escalates the debate over an eminent domain proposal that has roots in San Bernardino County’s foreclosure woes, but has yet to be subjected to official debate by the agency empowered to actually put the plan into work.
The idea rests on the concept of using eminent domain to take over home loans that have been bundled into private mortgage-backed securities. In an eminent domain case, a court requires a property owner to sell an asset at whatever amount is “fair market value.”
U.S. governments have never before used eminent domain to buy a mortgage.
Mortgage Resolution Partners, a San Francisco investment firm, is spearheading the idea. Its leaders say government ownership of mortgage notes will give homeowners a better chance to refinance and stave off foreclosure.
The San Francisco firm says its proposal is intended to help homeowners whose outstanding mortgage debt exceeds the market value of their homes. The company is raising private capital to finance any purchase of homes via eminent domain. Under the plan, the firm would collect a fee for each loan acquired.
Mortgage Resolution Partners’ co-founder Steven Gluckstern said the Justice Department should “look carefully” for the kind of violations Newsom mentioned in his letter.
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