Another city has stepped into the eminent domain fray in a bid to save underwater borrowers.
Richmond, Calif., is drawing fire from the mortgage industry for its proposal to use eminent domain laws to grab underwater mortgages from investors in an effort to stem foreclosures.
The city has proposed a partnership with Mortgage Resolution Partners (MRP), a private backer which will provide the money required to buy underwater mortgages from the current holders, CNNMoney has reported. Should the note holders be unwilling to sell, the city would exercise eminent domain to sieze the properties. MRP stands to profit from the deal when the loans are refinanced.
The move has sparked outrage from the mortgage industry. The Association of Mortgage Investors has condemned the move, saying that it is designed to benefit MRP.
"Mortgage Resolution Partners is not Robin Hood. MRP is a for-profit business that runs an investment fund. However, this fund does not make investments in the free market. Its business model depends on persuading local governments to use the blunt instrument of eminent domain to take money away from the investments of seniors, unions, and others in the mortgage market, give that money to MRP, and, as a result, lower property values across communities as rates on new mortgages go up," AMI said.
AMI claimed the city's eminent domain play will only benefit 198 Richmond homeowners, approximately 0.5% of the city's households, and AMI board president Vincent A. Fiorillo said it would ultimately hurt the city's housing market.
"The Mayor of Richmond claims she is fighting Wall Street, but she is really harming the public pensions of teachers, firemen, and first-responders – as well as raising uncertainty as to the true cost of future mortgage lending. By doing so and approving the MRP plan, the community has added an additional credit cost and limited housing finance availability," Fiorillo said.
The Mortgage Bankers Association has also jumped into the fray, with president and CEO David Stevens claiming the plan was "ill-advised".
"The program is a short-term solution for a few underwater borrowers that will have severe negative long-term costs for every homeowner in the city. Mortgages in Richmond will become more expensive, making neighboring cities more desirable for prospective home buyers, which will hold down home values for everyone in Richmond. In short, the program is ill-advised and likely unconstitutional and will add to Richmond’s problems rather than solve them,” he said.
MRP has made similar proposals in other cities hard hit by foreclosures. Earlier this year, San Bernadino County, Calif., passed on the plan presented by MRP. The city of North Las Vegas is still considering an eminent domain move proposed by MRP.