Underwater Mortgage Plan Rejected by County That First Proposed It
Citing lack of public support, the California County that first considered using eminent domain to seize control of private residential mortgage-backed securities with the intent of cutting the principal balances of negative-equity borrowers has publicly announced its decision against that course of action. Under the original proposal, Mortgage Resolution Partners would find institutional investors willing to provide the financing for government agencies to condemn millions of distressed mortgages. The government would have taken title to the loans, but not the actual home, and paid the original mortgage owner the “fair value” with the money provided by institutional investors. Mortgage Resolution Partners would then have worked to restructure the loans to reduce homeowners’ monthly mortgage payments, while selling the restructured loans to hedge funds, pension funds and other institutional investors with the proceeds paying back the outside financiers.
News of San Bernadino’s about-face comes hours after the concept was featured in discussion by eminent domain practitioners from around the country at the annual ALI-CLE Eminent Domain and Land Valuation Conference in Miami last week. At that conference, two panel discussions debated the wisdom of utilizing eminent domain to take underwater mortgages. The panelists included Cornell Law Professor Robert Hockett, Loyola University Law Professor Emeritus Gideon Kanner, Pacific Legal Foundation’s James Burling and McKirdy & Riskin‘s Ed McKirdy and Anthony DellaPelle. In sum, the panelists substantially agreed that the plan was fraught with possible problems and pitfalls, and warned that its implementation would be more expensive than the plan’s proponents had suggested, and was not likely to result in any meaningful public good or purpose.
The concept has been a lightning rod for public opinion. As we noted in prior blog post found here, experts, media, and politicians varied widely in their opinions on the proposed plan. However, this is may not be the last time we have heard of this idea as the company proposing the idea is still in discussions with other municipalities around the country to implement the plan.
For more on this story, please see the following news articles and opinion pieces: