May 20, 2014

No appeal after California eminent domain ruling

May 21, 2014 – The investors in securities backed by residential mortgages that tried to stop the city of Richmond, Calif., from seizing 624 loans will not appeal the court decision against them. The city has not followed through on its plan to take the loans.

According to Businessweek, "U.S. District Judge Charles Breyer in San Francisco dismissed the case in September because the Richmond City Council hadn't voted to proceed to state court and file an eminent-domain case to seize the loans. The trustees' claims depend on ‘future events that may never occur,' Breyer said."

The city was working with a firm called Mortgage Resolution Partners to purchase loans at a discount from homeowners who owed more than their homes were worth, and then refinance 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. The arrangement had been touted as a way for the city to help homeowners avoid default.

NAFCU has supported legislation barring the Federal Housing Administration from insuring residential mortgages seized by eminent domain, and believes the use of eminent domain impedes the recovery of the housing market. After urging from NAFCU, the Federal Housing Finance Agency said in August that it would cut off or challenge states or local areas attempting to invoke eminent domain to restructure mortgage loans.