Nevada City Rejects Eminent Domain Mortgage Plan

Another city has flirted briefly withrnthe idea of using eminent domain as a tool to help resolve a severe housingrncrisis.  The North Las Vegas, Nevada CityrnCouncil, however rejected the proposal on Wednesday by a 5-0 vote.  </p

The concept, being promoted by MortgagernResolution Partners (MRP), would involve the local government purchasingrnmortgages secured by properties within their borders and with loan balancesrnlarger than the value of the property. rnThe loans would be bought from mortgage servicers out of securitizedrnmortgage pools and restructured to reflect actual property values then resold onrnthe secondary market.  In most cases the eligiblernloans would be performing ones.  Ifrnservicers and the investors who own the loans are unwilling to participate thenrnthe local community would seize the loans (with compensation to the owners)rnusing its eminent domain powers.  </p

The idea has been considered by a numberrnof communities over the past 15 months including several in California such asrnStockton and San Bernardino; Chicago, and Brockton, Massachusetts and has beenrnstrongly and loudly opposed by investors and their trade organizations.  The Federal Housing Finance Agency, regulatorrnand conservator of Fannie Mae and Freddie Mac, has voiced opposition and atrnleast one law has been introduced in Congress which would forbid any governmentrnentity from purchasing a loan or issuing a loan guarantee in any communityrnwhich implements such a plan.  Most ofrnthe communities which were interested have backed off the idea but Richmond,rnCalifornia has sent servicers offer letters for purchasing some 600 loans andrnhas now been sued by investors holding mortgages through Wells Fargo andrnDeutchbank.  </p

According to Reuters the plan proposedrnfor North Las Vegas by MRP involved the company helping the city to acquire andrnrefinance loans from a group of more than 3,900 mortgages.  MRP said the city risks 2,500 foreclosuresrnfrom underwater mortgages held in private label mortgage securities.  </p

ThernAssociation of Mortgage Investors (AMI) and SIFMA which has been the mostrnoutspoken critics of the plan, quickly issued statements commending the NorthrnLas Vegas decision.  AMI Board PresidentrnVincent Fiorillo said, “Tonight’s council meetingrnrepresents a healthy outcome for the local community and economy.  As AMIrnhas often explained, the use of eminent domain in this context is untested,rnuntried, and unconstitutional.  Its use is fraught with negative economicrnconsequences for the community.”   </p

He said recent housing and economicrndata underscores that the housing recovery is real and underway, including inrncommunities such as North Las Vegas and skewered MRP saying, “(It’s) not RobinrnHood.  MRP is a for-profit business thatrnruns an investment fund.  However, this fund does not make investments inrnthe free market.  Its business model depends on persuading localrngovernments to use the blunt instrument of eminent domain to take money awayrnfrom the investments of seniors, unions, and others in the mortgage market,rngive that money to MRP, and, as a result, lower property values acrossrncommunities as rates increase on new mortgages.”</p

Timothy Cameron, managing director and head of SIFMA’s Asset ManagementrnGroup said, “We are encouraged that North Las Vegas has decided it will notrnpursue the use of eminent domain to seize mortgages. SIFMA believes that thisrnuse of eminent domain is unconstitutional and harmful to American savers, andrncould hamper the housing market recovery both in North Las Vegas and around therncountry.</p

“Specifically, this misuse of eminent domain would harm the savings ofrneveryday Americans who have money invested in mortgage-backed securitiesrnthrough their retirement funds and other investments. It would also introducernsignificant new risks into mortgage lending, which could raise borrowing costsrnand restrict credit availability at a time when our nation needs privaterncapital to return to the housing markets.”

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