Mortgage industry professionals are praising the recent rejection of a plan to use eminent domain to save underwater homeowners.
The city of North Las Vegas had been considering a proposed partnership with Mortgage Resolution Partners (MRP) in which the city would to buy mortgages on underwater homes at what they believe to be fair value, using the power of eminent domain to force reluctant note holders to sell.
The city of Richmond, Calif., voted recently to go ahead with a similar proposal, drawing the ire of industry professionals and prompting legal complaints from lenders like Wells Fargo and Deutsche Bank, who claim the plan would harm bondholders since the city would most likely underpay for the troubled mortgages.
The same complaints had plagued the North Las Vegas proposal, prompting the city council to reject it and defer to the state of Nevada to determine the plan’s legality.
The move prompted praise from mortgage industry groups.
“Mayor John Lee and the city council deserve credit for doing the right thing. MRP’s proposal, if implemented, would have risked harming the nascent housing recovery in North Las Vegas,” said Vincent Fiorillo, boardpresident of the Association of Mortgage Investors.
“We are encouraged that North Las Vegas has decided it will not pursue the use of eminent domain to seize mortgages,” said Timothy Cameron, managing director of the Securities Industry and Financial Markets Association. “SIFMA believes that this use of eminent domain is unconstitutional and harmful to American savers, and could hamper the housing market recovery both in North Las Vegas and around the country.Specifically, this misuse of eminent domain would harm the savings of everyday Americans who have money invested in mortgage-backed securities through their retirement funds and other investments. It would also introduce significant new risks into mortgage lending, which could raise borrowing costs and restrict credit availability at a time when our nation needs private capital to return to the housing markets.”