Seizing 'Underwater' Homes Using The Power of Eminent Domain
The nationwide housing
recovery has not hit the City of El Monte. Some home loan modifications
and federal help have scarcely pulled neighborhoods out of financial
crisis...with an estimated one thousand homeowners on the brink of
foreclosure. And now frustrated city leaders may take an unprecedented
step to save homeowners saddled with these underwater mortgages.
The strategy... Seizing those homes using the power of eminent
domain. Then city would first condemn home, take it, and then offer to
sell it back to the bank for what the city considers "fair market
value." The bank's shareholders and investors would essentially absorb
any losses. Wall Street groups including a group called SIFMA strongly
oppose the tactic and are meeting with city leaders.
But opponents warn eminent domain could do more harm in the
end...because banks would become afraid to invest or lend more to these
Critics also say the move is unfair to investors...as many of these loans are bought by 401k and pension plans.
SIFMA released this statement :
Tim Cameron, Managing Director, Head of SIFMA AMG:
"We strongly oppose the use of eminent domain to seize mortgage
loans, and believe it is a serious mistake to pursue a plan that would
harm investors, constrict credit for borrowers and depress housing
prices just as the housing recovery is gaining steam.
"Asset managers have a fiduciary duty to protect their clients, who
are the investors—the teachers, firefighters, policemen and other
middle-class American savers—who put their money into 401(k)s, pension
plans, IRAs and other savings vehicles that invest in mortgage-backed
securities. The eminent domain proposal targets MBS and tears mortgage
contracts apart, creating a loss for investors and significantly
undermining the trust and confidence investors and savers have
traditionally had in America's."
San Bernardino County and two of its cities rejected this option to
avoid a costly legal battle. The El Monte City Council will vote on
whether to employ this strategy tomorrow. Two dozen other local state
governments are also considering it including Seattle, Newark, and North