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 program.
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.