Financial Industry Issues Threats as Local Governments Consider Eminent Domain of Underwater Mortgages
The dearth of meaningful solutions to the housing crisis has local officials considering a complex, controversial loan modification proposal that has piqued the interest of several municipal governments across the nation. The proposal has a component that taps into local government’s constitutional authority and power to take private property for a public purpose upon paying fair compensation. Mortgage Resolution Partners (MRP), a San Francisco investment firm, is busy networking with local government officials in several cities to inform them of this unique and creative approach to principal reduction modifications for underwater mortgage loans. MRP already met with controversy prior to introducing their profit-making eminent domain idea. Phil Angelides, the former California state treasurer and former chairman of the Financial Crisis Inquiry Commission, a federal commission set up to look into the causes of the financial crisis, was one of MRP’s founding members. Starting in late 2011, MRP was seeking six million in start-up capital for their group’s plan to turn a profit by investing in distressed mortgages and had touted its political connections as part of its “secret formula” for negotiating deals to buy distressed mortgages. By February 2012, Angelides stepped down when his obvious conflicts of interest were questioned by journalists and officials.
One of the most hotly contested issues in the current proposal is its restriction to performing, current but underwater mortgage loans. The proposal seems silent on delinquent loans, loans in foreclosure, and homes with a second mortgage. The proposal may specifically exclude mortgage held by the government sponsored entities (GSEs), Freddie Mac and Fannie Mae.
This afternoon a U.S. House panel will convene to discuss the threatening ultimatums issued by financial industry groups to the local officials who are exploring the option of eminent domain to address the housing crisis in their cities. The panel will not be live-streamed or videoed but U.S. Rep. Maxine Waters’ staffers may tweet from the conference room from twitter handle @MaxineWaters. The financial industry has a long established pattern of bullying elected officials and judges when they fear regulation or interference. A notable example is how, a decade ago, banks did an end run around states that tried to enact laws aimed at protecting their residents from predatory lending practices. The strong anti-bullying programs established in American schools should serve as good models for removing any aggressive and harmful financial industry presence that puts American families at risk.
For some background reading see the links in the post above or below.
Read California Lt. Governor Gavin’s letter of concern to the Department of Justice here.
Reuters has an article California urges fed probe of eminent domain “threats” here.
House Financial Services Panel Series
The Housing Crisis and Policy Solutions: Should Eminent Domain be Used to Save Underwater Homeowners?
- Tom Deutsch – Executive Director, American Securitization Forum, Inc
- Laurie Goodman – Senior Managing Director, Amherst Securities
- Julia Gordon – Director of Housing Finance and Policy, Center for American Progress
- Robert Hockett – Professor, Cornell Law School
- Tim Cameron – Managing Director, SIFMA
- Richard A. Dorfman – Managing Director, SIFMA
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