Eminent domain fight brews in California
Aug. 19, 2013 – Investors in securities backed by residential mortgages reportedly are seeking to stop the city of Richmond, Calif., from purchasing 624 loans that range as high as $1.1 million despite the city’s threat to use eminent domain to seize them.
The city is working with a firm called Mortgage Resolution Partners. The report says the loans, in which homeowners owe more than their homes are now worth, would be purchased at a discount and refinanced with federal backing to homeowners for a little less than their homes’ value. The remainder would be split by the city, MRP and MRP’s investors, according to a report last week by The Wall Street Journal’s MoneyBeat.
The arrangement has been touted as a way for the city to help homeowners avoid default, and the city has threatened to use eminent domain to seize the loans if lenders won’t sell them. Some say they cannot because the loans have been packaged into securities and that selling them would violate their commitment to investors.
The report says about 43 of the loans at issue have balances exceeding $600,000. It says the city is seeking to purchase the targeted loans for amounts ranging from 94 percent to 7 percent of the amounts still owed.
“Wells Fargo & Co. said in a letter Tuesday to Richmond that it wouldn’t be selling any loans out of mortgage-bond trusts because it doesn’t have the authority to do so,” the report says.
The Federal Housing Finance Agency says it is ready to challenge or cut off its business in states or local areas that attempt to invoke eminent domain to restructure mortgage loans. At least three House bills dealing with federal programs include provisions to bar such activity as well.
NAFCU supports efforts to block the use of eminent domain to seize mortgages, warning the activity will lead to tightened mortgage credit and impede the recovery.
The Wall Street Journal's MoneyBeat, 8/15
"FHFA will challenge eminent domain actions," 8/9
"NAFCU backs bill to halt eminent domain use," 7/31