Legal experts weigh in on proposed program for underwater homeowners in San Bernardino County

[Pepper]

Inland Valley Daily Bulletin:

 

Legal experts weigh in on proposed program for underwater homeowners in San Bernardino County Eminent domain raises legal concern

Joe Nelson, Staff Writer Created: 07/04/2012 11:15:06 PM PDT

 

Legal analysts are giving conflicting views on whether a proposed program in San Bernardino County to help homeowners with negative equity stay in their homes could withstand a legal challenge.

 

San Francisco-based investment firm Mortgage Resolution Partners has proposed the county use eminent domain to seize control of underwater loans and then modify them for homeowners at affordable rates.

 

The loans would then be sold to hedge and pension funds or other investors, with the proceeds being used to pay off outside financiers, who would fund the eminent domain process.

 

Mortgage Resolution Partners would take a fee for each loan seized through eminent domain, a process typically used by government to seize private property, at fair market value, through court order for redevelopment or large-scale infrastructure projects.

 

San Bernardino County's proposed program would be the first time eminent domain would be used to condemn private-label mortgage-backed securities, not real estate, in the public interest. The original bondholder would be left eating the difference between what was owed on the original mortgage and the renegotiated loan at current market value.

 

 

ALSO SEE

 

An Off-the-Wall Plan to Save Homeowners (and Make Some Investors Rich)

 

http://www.theatlantic.com/business/archive/2012/07/an-off-the-wall-plan-to-save-homeowners-and-make-some-investors-rich/259462/

 

According to the paper, Mortgage Resolution has told investors that it would start with a $5 billion in California, then expand to a $500 billion program nationwide.

[Pepper]

From comment on

http://online.wsj.com/article/SB10001424052702303933404577505013392791018.html

 

 

Ken Green wrote:

 

So let me see if I understand this.

1) Government programs forced banks and investment funds to issue mortgage loans to people who, realistically, couldn't afford the house they were buying. They had insufficient equity, and insufficient career prospects, but that was no obstacle. The government itself made massive numbers of mortgages to people with poor career prospects and potential for repayment of the loans.

2) The zero-down, low-intro-interest, combined with realtor incentives led to massive inflation in house prices.

3) Jim bought a house for $300,000 in California, knowing that comparable houses elsewhere sold for $150,000.

4) The California housing bubble burst, and Jim's house is now worth only $150,000.

5) So the California government's going to shaft the lender (who lent Jim $300,000 in good faith) to the tune of $180,000 by confiscating the mortgage, and arbitrarily deciding to repay the lender only $120,000.

6) Then, they're going to transfer $145,000 of Jim's debt to the Federal Government, putting taxpayers on the hook if Jim still can't (or chooses not to) pay his mortgage.

7) Along the way, the various government agencies are going to pocket $25,000 for their own fun and profit.

 

How is this not outright theft, and nationalization of the entire mortgage industry? What private lender will ever make mortgage loans again in a situation like this? Are these people utterly insane?

 

14 Recommendations

5 hours ago

 

Kevin Dougherty Replied:

 

Hey, its a socialist thing...you wouldn't understand

 

8 Recommendations

[Pepper]

More

 

 

San Bernardino County’s sketchy plan to help homeowners will involve seizing mortgage loans using eminent domain

 

In order to break mortgage contracts the San Francisco-based venture capitalist firm will use the legally upheld eminent domain condemnation maneuver to separate individual mortgages sold in bundles to private investors. Two investment banks—Evercore Partners, Inc. and Westwood Capital—are floating the big government racket to bond fund mangers, hedge funds and insurers to raise the necessary cash for the condemnation process. The municipality will then take title to the seized loan and pay the original mortgage owner the fair market value for the real estate at a loss with money from the investors. The homeowner in need of relief is promised a fresh loan with a restructured lower monthly payment through the services of Mortgage Resolution Partners.

 

The firm will receive a negotiated fee for each modification. Loans that are restructured will go back into a new bundle to be sold to hedge and pension funds to pay back the investors.

 

The shell game scheme uses the same players that contributed to the subprime real estate debacle. Worse for residents in the core of Fontana is the JPA between the city council and the county Board of Supervisors which is similar to the template that previously allowed the Fontana Redevelopment Agency to raid funds for low income housing. In 2007 the Fourth District Court of Appeals found that Fontana had failed to meet affordable housing obligations for over 20 years. But the court ruling that ordered the Fontana Redevelopment Agency to return $53 million to a low-income housing fund was unable to stop the stop the cash flow to developers’ pet projects.