The American Securitization Forum (ASF) wrote a letter to the San Bernardino County Board of Supervisors that stated that the proposed plan to use eminent domain to seize residential mortgages would be “poor public policy and unconstitutional.”
The county and the cities of Ontario and Fontana have formed a Joint Powers Authority to consider a plan from private company Mortgage Resolution Partners (MRP) to use the state’s authority to seize current but underwater home loans.
“Tellingly, however, MRP proposes only seizing mortgages from private-label securitizations in which homeowners are current on their payments,” the ASF stated.
The MRP plan entails only paying 75-80% of the current value of a property to mortgage investors, but then refinancing those loans to gain 107% of the property value. This would provide large profits for the company and its investors while undermining any public purpose.
“Using eminent domain may seem like an appealing way to help distressed borrowers in these difficult times, but the proposal, as a policy matter, wouldn’t actually help borrowers in distress and would be short-sighted and ultimately counterproductive for San Bernardino County,” stated Tom Deutsch, executive director of the ASF. “Legally, the plan would violate both the California and United States Constitutions.”
Also this morning, the Securities Industry and Financial Markets Association (SIFMA) released a statement also stating its objections to the use eminent domain.
Timothy Cameron, managing director of the SIFMA asset managers group, named three key reasons against the use of eminent domain. He argued that San Bernardino residents will be the most adversely affected by this move because they will find it more challenging, or even impossible, to attain credit. The second concern is that this method presents significant legal and constitutional issues. Finally, the SIFMA warned that the MRP’s proposed plan would shift the authority of the municipality to a private party that has a profit motive, thus putting the county at risk.