San Bernardino to use eminent domain to seize all homes with underwater mortgages
If you're already inclined to suspect governments of overreaching, boy will you hate the plan San Bernadino is contemplating.
About half of the homeowners in the newly bankrupt California city are underwater, which means they owe more on their mortgages than their homes are worth.
In conjunction with a San Francisco outfit called Mortgage Resolution Partners, San Bernadino is considering a plan to exercise eminent domain and seize mortgage liens on some of those underwater homes. As my Reuters colleagues Matt Goldstein and Jennifer Ablan were the first to report, the eminent domain scheme works like this: With financing from an outside operation such as MRP, the city would condemn underwater mortgages and purchase them in the name of the public good for a court-determined fair market price.
UPDATE: San Bernardino eminent domain plan draws Wall Street criticism
A plan to seize and restructure troubled mortgages in San Bernardino County using eminent domain has drawn big Wall Street players to the halls of local government once again.
The cities of Ontario and Fontana, in partnership with the county, are exploring using private funds to acquire mortgages that are "underwater," in which the homes wouldn't sell for enough money to pay off the loans. Under the Homeownership Protection Program, the loans acquired by government authority would be restructured, lowering the amount owed, with the intent of helping the owner keep the home.
Tim Cameron, a representative of the Securities Industry and Financial Markets Assn., appeared on Thursday before the second meeting of the Joint Powers Authority, formed by the county and the two cities to explore the idea in public.
Cameron, who heads the association's asset management group, reiterated his displeasure with using eminent domain to condemn underwater mortgages, saying that it could cause more harm than good for borrowers in the region and that it also raises serious legal and constitutional concerns, according to his prepared comments.
UPDATE: San Bernardino County supervisor: Mortgage relief plan could bring 'unintended consequences'
San Bernardino County Supervisor Janice Rutherford is ramping up her opposition to a controversial proposal that would have the county partner with a private firm and use eminent domain to seize underwater mortgages to stimulate the housing market.
She said she is most concerned about the "unintended consequences" of such an action, such as banks possibly becoming less willing to lend to homebuyers if government is cherry-picking loans from underwater homeowners.
"The abuses of eminent domain are too plentiful and fresh for those of us who value property rights to swallow assurances that its use in this context would be limited," Rutherford wrote in an editorial last week for the conservative blog Flashreport.
San Bernardino County, with roughly 150,000 of its residents underwater on their mortgages, is among the hardest hit in the nation since the subprime mortgage crisis hit in 2007. It is seriously considering the proposal by San Francisco-based Mortgage Resolution Partners that, if implemented, would be the first time eminent domain would be used for such a purpose.