The city council of North Las Vegas, Nevada voted unanimously last night to terminate plans to use eminent domain to seize underwater mortgage loans from private label securitizations trusts.
According to a JP Morgan report North Las Vegas, has $1 billion of loans that could have been targeted. The city council voted 4 to 1 in June to begin identifying target properties that could be seized.
The development comes amid concerns that more municipalities would begin to consider eminent domain seizure as a serious option, following The City of Richmond, California's proposal, which was developed, in part, by Mortgage Resolution Partners LLC (MRP).
The City of Richmond proposal would relieve certain borrowers from potential future losses, which would be transferred to RMBS investors. The plan targets predominately performing home mortgages that have values that are less than their outstanding loan balances.
Under the proposal, the City of Richmond would pay lenders approximately 75%-80% of a home's fair market value, irrespective of the amount of money still owed on the related mortgage.
Tom Deutsche, the executive director of the American Securitization Forum said in a press release today that nearly every jurisdiction around the country that had performed careful due diligence on eminent domain seizures, has ultimately rejected the plan as “poor public policy and illegal.” Along with North Las Vegas, other jurisdiction that have rejected eminent domain include Chicago, Illinoi; San Bernardino, California; and Brockton Massachusetts.
“We urge Richmond, California to follow the important course that dozens of other jurisdictions have charted in rejecting MRP’s ill-conceived notion of a free lunch for anyone willing to seize mortgage assets from pension and mutual fund which are putting retirees’ capital to work,” said Deutsche.
Other municipalities still considering eminent domain include the Californian cities of Pomona, Orange Cove and San Joaquin.
In August, Wells Fargo and Deutsche Bank filed a lawsuit against the City of Richmond, California’s plan to use eminent domain to seize underwater mortgage loans from private label securitizations trusts.
The Federal Housing Finance Agency also said in August that it may direct Fannie Mae and Freddie Mac to "limit, restrict, or cease business activities within the jurisdiction of any state or local authority employing eminent domain to restructure mortgage loan contracts."