is no longer under consideration as a mortgage modification tool in San
Bernardino County California. The County
and two of its cities, Ontario and Fontana have announced they are abandoning a
proposed plan to use that power to assist local homeowners with underwater
proposal the local governments would use their eminent domain authority to
purchase loans from investor pools at less than face value. They would then restructure them to reflect
the actual value of the underlying collateral, repackage the new loans, and
sell them to other investors. San
Bernardino County, located in southeast California's Inland Empire had a
population explosion during the housing boom and then was hard hit especially
hard by foreclosures and price declines.
The City of San Bernardino is currently seeking bankruptcy protection.
entities formed a Joint Powers Authority (JPA) last summer to study the eminent
domain idea proposed to them by Mortgage Resolution Partners, a San Francisco
investment firm also established last summer by Phil Angelides apparently for
the sole purpose of facilitating such mortgage purchases. Angelides is the former chair of the Financial
Crisis Inquiry Commission which investigated and issued a lengthy report on the
causes of the U.S. housing market collapse.
According to a report earlier this month from Reuters, Angelides was
seeking financial backers for his company, telling potential investors they
might realize a 20 percent annual return.
The JPA voted
unanimously on Thursday to table the proposal due, its chairman said, to a lack
of public support but that it was looking into other alternatives to help
homeowners in the three jurisdictions. After the JPA had first announced its intention
to study the idea it was picked up by other cities including Chicago and
also gathered a lot of negative attention from interested parties who
maintained that use of eminent domain for such a purpose would be an overreach,
constitute an unconstitutional use of the eminent domain power and an
unwarranted abridgement of investors' property rights. The Acting Director of the Federal Housing
Finance Agency (FHFA) Edward J. DeMarco opened a period of public comment on
the proposal which had the potential of impacting loans owned or guaranteed by Fannie
Mae and Freddie Mac which are in FHFA conservatorship. California representative John Campbell
introduced a bill, The Defending
American Taxpayers from Abusive Government Takings Act which would
have prohibited the Fannie, Freddie, FHA and the VA from buying loans in any
community adopting such a plan.
The most vocal
opponent was the Securities Industry and Financial
Markets Association (SIFMA) which represents the securities industry. They issued a number of press releases
indicating that any such action by a local government would result in a virtual
shutdown of mortgage credit in that community.
Following the announcement that eminent domain was off the table SIFMA
issued a statement which said in part, "We are encouraged to hear that the
county has decided it will not pursue use of eminent domain to restructure
mortgages. As SIFMA has said, the unprecedented, potential use of eminent
domain would cause severe damage to struggling housing markets and is likely
unconstitutional on its face. We are pleased that the County as recognized
these risks and decided to move in other directions."
also gave some indication SIFMA may have been negating with the JPA about the
decision. "The industry has remained
committed to helping homeowners stay in their homes, and today we affirm to be
more actively engaged with San Bernardino County. A number of existing programs
can be better utilized and SIFMA, along with the JPA, are committed to working
with servicers and local elected officials to assist homeowners."
to the Los Angeles Times, Steven
Gluckstern, chairman of Mortgage Resolution Partners, said that while he was
disappointed by JPAs decision, his group is in discussions with more than 30
other jurisdictions across the country and "he was confident that one of them
would probably enact the plan during the first three months of this year."