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Arguments over eminent domain mortgage seizure program ramp up for 2013

Joe Nelson, Staff Writer
Posted: 12/01/2012 06:13:41 AM PST

A proposal to use eminent domain to seize underwater mortgages in San Bernardino County appears to have quieted in recent months, but the proposed program is expected to make major headway in 2013.

"In 2013 we will clean up this mess, and we'll fix this problem," said John Vlahoplus, a founder and chief strategy officer for the San Francisco- based venture fund Mortgage Resolution Partners, which pitched the idea to San Bernardino County, where roughly 150,000 homeowners in the county owe more on their homes than they are worth, and municipalities across the country hardest hit by the subprime mortgage crisis.

"We're going to have strong success . . . in 2013," Vlahoplus said.

He said Mortgage Resolution Partners, or MRP, has been getting a lot of positive response from the cities and counties where it has proposed the idea, including San Bernardino County and the Northern California cities of Berkeley and Sacramento, as well as Suffolk County in New York.

"There's very strong interest on all fronts," Vlahoplus said.

MRP has proposed that the county use eminent domain, typically used by government to acquire, via court order, private property for redevelopment or capital improvement projects, to seize underwater mortgages. The loans would then be modified to current market value so people could afford their monthly mortgage payments and establish equity.

The loans would then be sold to hedge funds, pension funds or other investors, with the proceeds being used to pay off outside financiers, secured by MRP, who are funding the eminent domain process. MRP would take a $4,500 fee for each loan seized and modified, and 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. The county would retain the mortgage notes.The county has formed a joint-powers authority with the cities of Ontario and Fontana to consider MRP's proposal and any others on how best to fix the county's housing crisis. Roughly 150,000 county residents owe more on their properties than what they are currently worth.

The next meeting of the JPA will be held at 9 a.m. on Jan. 24.

MRP's proposal has Wall Street, the mortgage industry and even the federal government circling the wagons.

The federal government has threatened to redline cities and counties that engage in the practice, saying it could make it harder to get loans and force lenders to levy additional fees as a safeguard against government mortgage seizures
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And in September, U.S. Rep. John Campbell, R-Irvine, introduced federal legislation to make real that threat. The Defending American Taxpayers from Abusive Government Takings Act, or H.R. 6397, proposed prohibiting the nation's top four mortgage lenders - Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veteran's Administration - from purchasing or guaranteeing loans in counties or cities that use eminent domain to seize underwater mortgages.

The bill has since died in session, but will likely be reintroduced during the next Congressional session, said Christopher Bognanno, Campbell's spokesman.

But continued efforts to block the proposed program do not appear to be faltering.

On Tuesday, a public relations company serving the mortgage finance industry released results of an Internet survey of 113 Californians, 96 percent of who said they oppose eminent domain to seize mortgages because they didn't believe it would stabilize housing prices. In addition, the majority of those surveyed felt that borrowers understood the risks they assumed when they bought their homes.

Matt Strickberger of OnPoint PR and Consulting in Warren, N.J., said he conducted the survey independently and it was not commissioned by any client.

"I decided it was something the marketplace needed to understand the issue better," Strickberger said. "I was surprised what the numbers suggest - by and large that they don't see (eminent domain) as a solution to this very difficult problem."
He acknowledged that the survey, at only 113 surveyed Californians, was anything but scientific.

"Is it a straw pole? You'd probably be on point with that," Strickberger said. "But if you expanded it out to 1,500 or 3,000 people, my sense is I don't think the numbers or attitudes will change all that much. I think it will capture what homeowners think."

Vlahoplus gives no credibility to the survey and calls it biased.

"One of the biggest points in this poll is . . . that the borrower knew the risk he/she was taking when buying their home. This is a fundamental lie and misdirection by Wall Street," Vlahoplus said. "It is Wall Street's agenda to demonize the borrowers. Their goal is to prevent any solution and simply to foreclose on people and buy their houses cheap because they say people were aware of the risk."

Mark Dowling, CEO of the Inland Valley Association of Realtors, which has voiced strong opposition to the proposal, said the local real estate and mortgage community is standing back and waiting to see what the county's next move is.
"We're all kind of waiting to see what their next steps are. We're not sure," Dowling said.

Read more:Arguments over eminent domain mortgage seizure program ramp up for 2013 - San Bernardino County Sun

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