It won’t come as surprise to anyone following the developments on eminent domain seizures that RMBS bondholders are already taking legal action against Richmond, California.
Three RMBS trustees, on behalf of bondholders, filed a lawsuit in the United States District Court for the Northern District of California to prevent Richmond from using eminent domain powers to seize mortgages and write down balances.
They claim that Mortgage Resolution Partners (MRP) has led the City of Richmond, CA into an unprecedented use of eminent domain seizure that is “unconstitutional, harmful to homeowners and taxpayers, and unfair to millions of individual savers and investors,” according to a press release issued by Ropes & Gray LLP on behalf of the group of institutional investors that directed the legal action.
Richmond began actions on 624 mortgages, all in non-agency RMBS, last week under the plan created by MRP.
Richmond plans to pay 80% of the market value of the home. This, according to a JP Morgan report, would result in about $100 million of losses to the RMBS trusts, in which millions of pensioners, retirees and other savers are investors, the lawsuit claimed.
Another concern is that the scheme would mean less access to credit for borrowers in Richmond, in the form of higher down payment requirements and higher interest rates, as well as severely reduced capital allocation to mortgage markets. Home prices will be pushed even lower, exasperating the very problem attempted to be solved
“Mortgage Resolution Partners is threatening to seriously harm average Americans, including public pension members, other retirees and individual savers through a brazen scheme to abuse government powers for its own profit,” said John Ertman, Partner at Ropes & Gray.
The purpose of the lawsuit is to protect retirees and savers from an unlawful and unconstitutional seizure of private property and prevent severe damage to the country’s home mortgage market.
Plaintiffs in the case are trustees for the residential mortgage-backed securities trusts who own these mortgage loan contracts for the benefit of investors in the trusts.
The trustees are acting at the direction of institutions including asset managers who, as fiduciaries, are representing and protecting the interests of tens of millions of American savers and retirees that ultimately own these assets.
“Under this scheme, 100 percent of the cost will be borne by pensioners, savers and in some cases, the taxpayers who currently own these mortgage backed securities while 100 percent of the profit will be split between MRP and the City of Richmond,” said Ertman.