Lt. Gov Tells SIFMA "Back off" Eminent Domain Threats

California Lieutenant Governor GavinrnNewsom blasted a Washington trade group on Friday for making what he called threatsrnagainst local officials in the state’s San Bernardino County.  As was reported inrnMND, in June the county’s Board of Supervisors outlined and approved a planrnto use its eminent domain authority to seize and restructure underwaterrnmortgages.  Since that action officialsrnin Berkley and Chicago have passed similar measures.   </p

Almost immediately after the SanrnBernardino vote the Securities Industry and Financial Markets Associationrn(SIFMA) blasted the proposal saying in a press release that the action will “resultrnin significant harm to the residents the agreement intends to help.”  The plan, SIFMA said, may cause loans tornhomeowners in the area to be “excluded from securitizations, and some portfoliornlenders could withdraw from these markets. rnIn other words, this program could actually serve to further depressrnhousing values in the country by restricting the flow of credit to home buyers.”rn </p

On Friday Newsom said “The Washington,rnDC special interest groups need to back off. rnWe owe it to homeowners everywhere to see if the solutions beingrndiscussed in San Bernardino will work.”  Herncalled on SIFMA “to cease making threats to the local officials of SanrnBernardino County.”  Newsom said that thernfinancial sector has had long enough to fix the problems they helpedrncreate.  “We must think big and help ourrnlocal governments develop solutions – because the industry and federalrngovernment have not.”</p

“This may be an aggressive idea, but communities such as SanrnBernardino, Chicago and others have no choice in these desperate times,”rnNewsom continued. “We cannot allow Wall Street, who exploited the housingrnmarket for financial gain, to kill an idea before it is given a fair hearing.”  To untether homeowners from the anchor ofrnunderwater mortgages would restore consumer confidence, give a boost to therneconomy and to job creation, he said.</p

“The true injustice of the last few years is that as banks were bailedrnout and government claimed it has done all it can, the homeowner, the backbonernof our communities, has received nothing but eviction notices,” saidrnNewsom. “We need to help the people that government bailout programs havernleft behind – ordinary folks that have worked hard to keep their homes even asrnvalues plummeted.”</p

If San Bernardino, Berkley, or Chicago proceed with their plans it wouldrnprobably represent the first time eminent domain was used in the taking ofrnfinancial instruments.  It is traditionallyrnused by government to seize properties needed for public projects and SIFMArnmembers have stated that litigation would certainly follow any such actions,rnpossibly tying up any resolution in the courts for years.</p

Reuters reported that Kenneth E. Bentsen, Jr., SIFMA’s executive vicernpresident for public policy and advocacy released a response to Newsom thatrnsaid in part, “We’re simply laying out the facts so that the county isrnfully informed of the impacts of the proposed actions. We believe that thisrninappropriate and unconstitutional use of eminent domain would result in unfairrntakings from every-day investors and pensioners and be immensely destructive tornthe U.S. mortgage markets.”

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