County Agency Considers Next Step in Eminent Domain Proposal; SIFMA to Testify

An agency set up by county officials inrnSan Bernardino County, California were scheduled to meet Thursday morning torndetermine whether the county and several of its larger cities will proceed withrntheir controversial eminent domain plan. rnUnder the proposal, passed by the county’s Board of Governors in June,rnthe local governments would use their power, usually employed to take real propertyrnfor a public purpose, to seize underwater mortgages and restructure them intornnew obligations based on the homes’ current market values.</p

The area in what is known as California’srnInland Empire saw explosive growth and an accompanying surge in home pricesrnduring the boom of the early 2000s and when the crash came the area was clobbered.  The Federal Housing Finance Agency’ (FHFA)rnHousing Price Index for the area shows that the metropolitan area has sufferedrnprice declines in 19 of the last 20 quarters; declines that 11.57 percent inrneach period.  The Joint Powers Authorityrn(JPA), the agency set up to manage any eminent domain proceedings, providedrninformation today (derived from Zillow) showing that 60.3 percent of the homesrnin the area are underwater and that the average homeowner has $115,755 inrnnegative equity compared to a national average of $75,644.  One of the cities in the MSA, Stockton, recentlyrnfiled bankruptcy. </p

Among the persons scheduled to presentrnarguments to the Authority is Tim Cameron, representing the Securities Industryrnand Financial Markets Association (SIFMA.) rn  SIFMA released Cameron’srnprepared remarks in which he stated his group’s strong objections to thernproposals.  As SIMFA has stated in previousrnpress releases, they doubt the legality and constitutionality of any suchrneminent domain actions and they make it clear that they will take legal actionrnif the county goes forward.  Cameron alsornraises the specter of a significant negative impact on consumers saying the usernof the powers “would significantly harm mortgage finance markets, reduce accessrnto credit for borrowers, and negatively impact average investors’ portfolios.  In our view,” he said, “the long-term costsrnand liability risks of an eminent domain proposal far outweigh any professedrnshort-term benefits to a small group of performing homeowners.”</p

The SIFMA representatives suggests thatrnthe JPA should widen its target beyond the “few thousand people who have goodrncredit, are current on their mortgage payments, and most importantly, happen tornhave mortgages that have been sold in the private label securities market. Isrnthis really”, he asks, “where the JPA wants to focus its time and attention?”<br /<br /He suggests instead that they work to address issues in their area morernbroadly, in a way that "would actually provide assistance to borrowers inrnnear-term danger of foreclosure," and in a manner that both provides assistancernand protects the interests of all County residents, savers, pension fundrnparticipants, retirees, and prospective mortgage borrowers.  "If the problem that is trying to be solved isrnthe result of depressed property values, the solution should positively impactrnproperty values, not exacerbate declines or curtail the willingness ofrninvestors to invest in the County's housing and its residents".<br /<br /"Further, the JPA needs to fully appreciate and scrutinize the permanent,rnnegative consequences for the national housing finance system resulting fromrnundermining the concept of secured lending resulting from the exercise ofrneminent domain in the proposed manner,” Cameron said.</p

His statement goes on to suggest thatrnbetter coordination among policy makers and industry participants couldrnincrease awareness and participation in the many programs that already exist tornassist homeowners.  There are a lot ofrnprograms from various levels of government and from mortgage services already outrnthere, he said.  “Local officials couldrnbe particularly helpful in identifying additional communication avenues and inrnbringing those homeowners to the table that may be reluctant to respond tornindustry outreach out of skepticism or fear.”<br /<br /He concluded by suggesting that JPA should "engage with the industry to betterrnunderstand the situation on the ground in San Bernardino, what has been tried,rnand where opportunities for improvement exist. For example, you may berninterested to know that loan modification rates in San Bernardino far exceedrnnational averages and even averages across California." </p

Today’s JPA meeting is for the statedrnpurpose of authorizing the Authority staff to issue a Request for Proposals (RFP)rnto operate a Home Protection and Foreclosure Prevention Program for the countyrnand if that is approved the RFP will be issued shortly.  </p

Both Berkeley, California and Chicagornhave made several similar eminent domain proposals in recent weeks and FHFA hasrnexpressed its concern that such programs would adversely affect Freddie Mac andrnFannie Mae for which it is the conservator.

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