Proposal to Seize Underwater Mortgages via Eminent Domain not Well Received

by devteam June 29th, 2012 | Share

The Board of Supervisors in the California county of San Bernardino has,rnperhaps unintentionally, picked a fight with some of the giants of the realrnestate industry.  The Board unanimouslyrnapproved a plan two weeks ago that would use eminent domain to seize underwaterrnmortgages and restructure them for homeowners unable to sell or refinance the properties.</p

The Homeowner Protection Program, in which San Bernardino would partner withrnthe cities of Ontario and Fontana within its borders, is only broadly sketchedrnout at present but it has already provoked a strong reaction from the Securities Industry and Financial MarketsrnAssociation (SIFMA).  SIFMA claims tornrepresent the interests of hundreds of securities firms, banks and assetrnmanagers.  The trade association firedrnoff a letter to the Board on Friday, cosigned by more than a dozen of itsrnmember organizations, protesting the proposed actions.  “Based on publicly available information onrnthe Agreement,” the letter said, “we are very concerned that the goodrnintentions of the Board of Supervisors will instead result in significant harmrnto the residents the Agreement intends to help.” </p

The thrust of the letter is that such an action as proposed in SanrnBernardino would significantly reduce access to credit for mortgage borrowers.  “If eminent domain were used to seize loans,rninvestors in these loans through mortgage-backed securities or their investmentrnportfolios would suffer immediate losses and likely be reluctant to providernfuture funding to borrowers in these areas. rnIt is essential to remember that investors in mortgage-backed securities</bchannel the retirement and other savings of everyday citizens through theirrninvestment funds.  This program may causernloans to be excluded from securitizations, and some portfolio lenders couldrnwithdraw from these markets.  In otherrnwords, this program could actually serve to further depress housing values inrnthe county by restricting the flow of credit to home buyers"</p

The Los Angeles Times quotes DavidrnWert, a spokesman for the county as saying the country would use eminent domainrnto condemn mortgages on properties that are underwater, that is the owner ownsrnmore on the mortgage than the value of the home, and would then renegotiate thernmortgages at a lower amount.  Onlyrnhomeowners who are current on their mortgage payments would be eligible for thernprogram. </p

The move is intended to help stimulate the region’s hard-hit economy byrnfreeing up people who have been stuck in their homes, Wert said. “Real estaternis the foundation of the inland economy, rn [It] is based on the building andrnselling of homes, and this is one way to stimulate that again.”</p

The program is still in its initial stages and additional details will bernhashed out in public the spokesman on said. rn</p

Among those signing the SIFMA letter one were the Mortgage BankersrnAssociation, American Bankers Association, National Association of Realtors®,rnThe Financial Services Roundtable, American Securitization Forum, and thernResidential Servicing Coalition.

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of is prohibited.

About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

See all blogs


Leave a Comment

Leave a Reply

Latest Articles

Real Estate Investors Skip Paying Loans While Raising Billions

By John Gittelsohn August 24, 2020, 4:00 AM PDT Some of the largest real estate investors are walking away from Read More...

Late-Stage Delinquencies are Surging

Aug 21 2020, 11:59AM Like the report from Black Knight earlier today, the second quarter National Delinquency Survey from the Read More...

Published by the Federal Reserve Bank of San Francisco

It was recently published by the Federal Reserve Bank of San Francisco, which is about as official as you can Read More...