The Board of Supervisors in the California county of San Bernardino has,
perhaps unintentionally, picked a fight with some of the giants of the real
estate industry. The Board unanimously
approved a plan two weeks ago that would use eminent domain to seize underwater
mortgages and restructure them for homeowners unable to sell or refinance the properties.
The Homeowner Protection Program, in which San Bernardino would partner with
the cities of Ontario and Fontana within its borders, is only broadly sketched
out at present but it has already provoked a strong reaction from the Securities Industry and Financial Markets
Association (SIFMA). SIFMA claims to
represent the interests of hundreds of securities firms, banks and asset
managers. The trade association fired
off a letter to the Board on Friday, cosigned by more than a dozen of its
member organizations, protesting the proposed actions. "Based on publicly available information on
the Agreement," the letter said, "we are very concerned that the good
intentions of the Board of Supervisors will instead result in significant harm
to the residents the Agreement intends to help."
The thrust of the letter is that such an action as proposed in San
Bernardino would significantly reduce access to credit for mortgage borrowers. "If eminent domain were used to seize loans,
investors in these loans through mortgage-backed securities or their investment
portfolios would suffer immediate losses and likely be reluctant to provide
future funding to borrowers in these areas.
It is essential to remember that investors in mortgage-backed securities
channel the retirement and other savings of everyday citizens through their
investment funds. This program may cause
loans to be excluded from securitizations, and some portfolio lenders could
withdraw from these markets. In other
words, this program could actually serve to further depress housing values in
the county by restricting the flow of credit to home buyers"
The Los Angeles Times quotes David
Wert, a spokesman for the county as saying the country would use eminent domain
to condemn mortgages on properties that are underwater, that is the owner owns
more on the mortgage than the value of the home, and would then renegotiate the
mortgages at a lower amount. Only
homeowners who are current on their mortgage payments would be eligible for the
The move is intended to help stimulate the region's hard-hit economy by
freeing up people who have been stuck in their homes, Wert said. "Real estate
is the foundation of the inland economy,
[It] is based on the building and
selling of homes, and this is one way to stimulate that again."
The program is still in its initial stages and additional details will be
hashed out in public the spokesman on said.
Among those signing the SIFMA letter one were the Mortgage Bankers
Association, American Bankers Association, National Association of Realtors®,
The Financial Services Roundtable, American Securitization Forum, and the
Residential Servicing Coalition.