TOPIC #1: IVAR Opposes Local Authority's Unprecedented Eminent Domain Plan
Recent News Update:
Update 9.24.12: "The Case Against Using Eminent Domain to Acquire “Underwater Mortgages” Sometimes the best commentary is also the most simple. In this post from Reason.com, Damon W. Root sums up the eminent domain issue pretty succinctly: “In other words, local governments are proposing to play favorites and to wield their enormous power to secure benefits for some at the expense of others.” This sentiment, plainly expressed, is at the heart of our opposition to the plan that has been proposed in San Bernardino County. The joint powers authority would inject itself into a private, market-based transaction and dramatically alter that transaction, with no recourse for the damaged parties, other than a lawsuit. This is not how our system of governance is supposed to work. Read more at: http://bit.ly/S67RX1
Update 9.14.12: "MBA Endorses Campbell Bill on Eminent Domain" The idea of using eminent domain to transfer ownership of a mortgage from one owner to another via government intrusion is “banana republic-type stuff,” according to Rep. John Campbell (R-Calif.), who has introduced legislation that would levy severe penalties on local governments that use eminent domain for such a purpose. Read more about Campbell’s objections here: http://on.wsj.com/PZRcrV The idea has been endorsed by the Mortgage Bankers Association. More details about that can be found here: http://1.usa.gov/TN832w
Update 9.15.12: "Future is uncertain for foreclosure idea" San Bernardino County CEO Greg Devereaux has been the strongest advocate for forming a joint powers authority to use eminent domain to seize mortgages and re-assign them to new owners, leaving the original owners holding the bag. But, as The Sun of San Bernardino notes in this story, leaders from surrounding areas are hardly rushing to jump on the bandwagon. Closer to home, San Bernardino County Supervisor Janice Rutherford opposes the idea outright. For the entire story: http://bit.ly/WThAFQ
Update 10.28.12: "It's Politics: The politics of real estate" Sure, the possibility of eminent domain being used to seize mortgages, creating havoc in the real estate and lending worlds along the way, is troubling. But is it akin to the historic land grab from the Owens Valley that gave Los Angeles the water it needed to become one of the largest cities in the country? One columnist makes the connection: http://bit.ly/Sl5qmv
Update 9.14.12: "Taking Mortgages Through Eminent Domain: Not the Solution to the Housing Crisis" A proposal to use the government’s power of eminent domain to seize mortgages and re-assign them to new owners, leaving the existing owners with a sizeable loss, would face “significant legal questions” regarding the “public use” and “just compensation” clauses of the 5th amendment to the U.S. Constitution, according to Walter Dellinger, a former U.S. Solicitor General now in private practice in Washington, D.C. The agency that regulates Fannie Mae and Freddie Mac also has expressed concerns about the proposal. Alfred Pollard, general counsel for the Federal Housing Finance Agency, said the idea, if implemented, would damage the concept of secured lending. Read more at: http://bit.ly/SPNEW0
Update 9.19.12: "REAL ESTATE: IVAR takes podium on eminent domain" IVAR was pleased to provide a local perspective to one of the largest gatherings in the nation to date to discuss the problems that would be caused by a proposal to use eminent domain to seize mortgages and re-assign them to new owners, damaging irreparably the interests of the original mortgage owners. Paul Herrera, IVAR’s government affairs director, spoke at the Mortgage Bankers Association symposium in Washington, D.C., which was attended by all the mortgage, banking, legal and political heavyweights who are weighing in on this issue. Herrera brought a local perspective to the event, telling attendees that the extremely dire circumstances being ascribed to the Inland area’s housing market to justify such a radical move do not always match up with the facts. Details of the meeting, and IVAR’s contribution to the discourse, can be found here: http://bit.ly/Vx9w8B
Update 9.20.12: "Mortgage-seizure plans concern feds" The assumed benefits of a plan to seize mortgages from private investors – fewer mortgage defaults and more money injected into the consumer economy – are sketchy at best. But the damage that would be done to the local real estate market and the lending environment were made very clear during the Mortgage Bankers Association symposium. “What investors in their right mind would invest in a community that allows arbitrary write-downs of negative equity?” asked the association’s President and Chief Executive Officer David Stevens. “That lack of investor capital will have a direct and profound impact on future home buyers in those communities, preventing a recovery of the housing market.” More details of his comments can be found here: http://bit.ly/RqKkAN
Update 9.20.12: "Will Regulators Halt Eminent Domain Loan Seizures?" When it comes to assessing the idea of using eminent domain to seize privately-held mortgages against the wishes of the people who hold those mortgages, maybe 700 years of law should be taken into account. That’s the word from Alfred Pollard, general counsel for the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac. And that word should matter, since we’re talking about an entity that guarantees 9 out of every 10 loans issued. More details here: http://on.wsj.com/VV4OHP
Update 9.15.12: "Finding a fix for foreclosure mess" Any benefit that could come from a plan to seize mortgages through eminent domain – and those benefits are far from a sure thing – would be dwarfed by the much larger impact that would result from a whole new layer of risk being inserted into the mortgage investing equation. So says a top official with the organization that is representing the investment community. “The use of eminent domain confronts lenders and investors with an unquantifiable new risk, which will reduce the amount of credit available to potential homeowners and causing irreparable damage to the recovering national housing market,” according to Randy Snook, SIFMA's executive vice president. Details can be found here: http://bit.ly/ReK31T
Update 10.4.12: "REAL ESTATE: Industry event explores eminent domain" For the first time, we now know how much money is at stake from a proposed scheme to use eminent domain to seize mortgages in San Bernardino County – and the numbers are staggering. During a recent, closed-door forum at the California Association of Realtors 2012 EXPO at Anaheim Convention Center, it was revealed that Mortgage Resolution Partners (MRP) and the governmental Joint Powers Authority it is wooing would stand to make more than $50 million in the initial round of mortgage seizures and more than $300 million over the life of the program. As you might expect, Realtors who attended the Expo were outraged at the possibility that MRP and the authority made up of San Bernardino County and the cities of Ontario and Fontana could walk away with that much of a windfall by taking someone else’s property with virtually no risk attached to the transactions. One Realtor quoted in news reports described MRP’s proposal as “legalized stealing” and vowed to fight the effort. The financial benefit became apparent after Steven Gluckstern from MRP disclosed that he expects his firm to qualify 3,500 to 4,000 mortgages in the initial round of activity if the JPA approves his proposal. He said his firm would be paid $4,500 per transaction, which amounts to somewhere between $15.75 million and $18 million, not counting whatever fees the group might get from investors who buy the newly-revised mortgages. Demonstrating the value of the new mortgages to investors – and the likelihood that MRP would generate even more money for itself on that end -- Gluckstern said MRP would pay the JPA $10,000 per mortgage, meaning the governmental body wielding the eminent domain power that makes the whole plan work would realize a payday of $35 million to $40 million in the first round alone. Given that Gluckstern said as many as 26,000 properties might ultimately be part of the program if it were approved and survived an inevitable court challenge from the financial services industry, the government JPA could receive as much as $260 million over the life of the program. MRP would receive $117 million in transaction fees alone, plus untold millions from investors. The disclosures made at the closed-door event, which were confirmed by a San Bernardino County spokesman who was part of the panel discussion, certainly make clear why MRP and the county met privately for months before even making the proposal public. For more information, just click on this link: http://bit.ly/Q9cLSF
Update 10.2.12: "REAL ESTATE: Realtors see 1.3% sales gain in 2013" Housing is expected to continue to recover in 2013, according to the California Association of Realtors. The projections would be the third straight year of recovery at a slow, but steady pace. The lowest interest rates in history, combined with low prices, have combined to create an exceptionally low inventory of available homes. In fact, one the biggest problems with the market now is the lack of homes to buy. The Inland Empire is among the areas with a critically low supply of inventory. For more information, click here http://bit.ly/RrfNSJ
Update 9.30.12: "Eminent Domain Tactic Is All Wet" A proposal to use eminent domain to acquire mortgages not only is on “shaky constitutional grounds,” but also would be “a disaster for local communities working to rebound from the mortgage crisis,” according Independent Banker, a monthly production of the Independent Community Bankers of America (ICBA). Credit would be difficult, if not impossible, to obtain in communities where the tenets of basic banking and financial services are so grossly undercut by using eminent domain to take mortgages, according to ICBA. To read more about why the organization says “advocates of this creative but dangerous genie-in-a-bottle concept should put a cork in it,” click here http://bit.ly/RLR1id
Update 9.28.12: "FORECLOSURE RELIEF: Inland lawmakers cool to eminent domain use" A proposal to seize mortgages using the government’s power of eminent domain is getting a “chilly reception” from the Southern California congressional delegation in Washington, D.C. As described in The Press-Enterprise, Republicans hate the idea and Democrats are not in a hurry to embrace it either. Rep. Ken Calvert, R-Corona, called the proposal “the stupidest thing I ever heard of.” Among Democrats, Rep. Joe Baca, D-Rialto, who represents an area of San Bernardino County where the plan would be first used, said “there are far too many unanswered questions surrounding the larger economic impact of the proposed policy on distressed homeowners, the Inland Empire’s financial institutions, and the county as a whole.” For more information, click here: http://bit.ly/WJ4TL7
Update 9.27.12: "High Stakes for Cities and Towns in Eminent Domain Showdown" The possibility of eminent domain being used to acquire mortgages has caused concern beyond the housing and financial services industries. Cities and counties that use eminent domain across the country for legitimate reasons, like assembling property to build highways or schools, are concerned that the proposal to use “condemnation” to acquire a financial instrument could have unintended consequences. The National League of Cities warns that “legislative or regulatory action that could impact use of eminent domain by local governments is a cause for concern.” It also notes that the National Housing Conference (NHC) has warned “that the proposal could do more harm than good.” For more information, click here http://bit.ly/SO4lPk
Update 9.12.12: MRP Softens Stance from "Utterly Ridiculous" to "Foolishly Reckless". Mortgage Resolution Partners, the firm behind the scheme to take privately-owned securitized mortgages through the government’s power of eminent domain, apparently has realized that its initial proposal to exclude an estimated 90 percent of the homeowners with “underwater” mortgages is a non-starter. MRP initially said it would only consider people who are current on their loans and have good credit – precisely the people who are least likely to lose their homes. With that criteria, how can you trumpet yourself as “a solution to the foreclosure crisis?” Well, you can’t. The company now says it is willing to consider homeowners who are delinquent in their mortgage payments or in default. But, while more people now are eligible to apply, there remains no guarantee that people who are in the most dire straits will actually get accepted into the program. And there remains that pesky problem of whether it is even legal to take a financial instrument through eminent domain, which is usually used to seize property for things like roads, schools and hospitals. More details can be found in this story from The Sun: http://www.sbsun.com/ci_21482566/underwater-mortgage-acquisition-proposal-expands-include-delinquent-or?source=most_viewed The story from The Press-Enterprise can be found here: http://www.pe.com/local-news/politics/imran-ghori-headlines/20120906-san-bernardino-county-mortgage-aid-expanded.ece A private company that wants to seize securitized mortgages through the government’s use of eminent domain, then refinance the homes with a smaller mortgage could realize a profit of as much as 30 percent, according to a story on housingwire.com. Of course, those profits will come at the expense of the people, organizations and pension funds that currently hold the mortgage. More information at: http://www.housingwire.com/news/mrp-could-net-30-profit-expanded-eminent-domain-plans
Update: 9.4.12: A statewide organization that opposes the abuse of eminent domain around California has endorsed James Ramos for San Bernardino County Supervisor in the Third District. California Alliance to Protect Private Property Rights announced today (Sept. 4) that its endorsement is based on Ramos’ opposition to government using eminent domain to forcibly acquire private property for private development by others. Ramos’ stance is especially important since San Bernardino County is considering a “risky and untested scheme” to seize mortgages through eminent domain, the organization said in a news release. California Alliance to Protect Private Property Rights opposes that effort, as has the Inland Valleys Association of Realtors and a number of financial and banking organizations around the country. Ramos’ election is “essential to curbing eminent domain abuse and stopping San Bernardino County from employing an untested and unconstitutional use of eminent domain before it becomes a national trend,” the organization said. Read the California Alliance to Protect Private Property Rights announcement here: http://www.calpropertyrights.com/ Read the Sun’s story about the issue at: http://www.sbsun.com/news/ci_21465162/property-rights-group-endorses-ramos-supervisor
Update 7.14.12: "Investors attack San Bernardino County's plan to seize mortgages" Pension plans, 401(k) plans and individual investors would be the ones taking the financial hit if San Bernardino County follows through on a proposal to use the government’s power of eminent domain to seize mortgages and re-assign them to new owners. Mortgage investors and lenders who might otherwise assist in the strengthening of such plans – and the investors involved with them -- would instead be driven away, according to an expert in the financial services field. Others question whether the plan even serves a public purpose, which is required for the use of eminent domain. For more information, click here: http://lat.ms/SYQ3Mz
Update: 7.13.12: Representatives from IVAR were among a chorus of speakers who unanimously spoke against the plan by Mortgage Resolution Partners. Speakers representing the Securities Industries and Financial Markets Association, Association of Mortgage Investors, California Bankers Association and REALTORS from other local associations were part of the lineup of speakers expressing their concern.
"For the first time in years we are seeing significant positive changes in the residential real estate market: foreclosures and notices of defaults are down, sales volumes are up, and median sales prices are on pace to increase 5% or more this year," Dowling said. "Yet, this JPA is on course to experiment with a radical use of eminent domain that could cause adverse impacts and unintended consequences to a recovering, yet fragile real estate market."
Click here to read the full transcript of CEO Mark Dowling's comments.
"We're here because entire communities could be caught in the blast radius of this eminent domain detonation. We're here, in short, because it stands to make every purchase more expensive and every home just a little further out of reach of average citizens."
Click here to read the full transcript of Paul Herrera's Comments
Update: 6.28.12: Today, 18 industry organizations issued a joint letter to the San Bernardino County Board of Supervisors and the City Councils of Fontana and Ontario opposing the use of eminent domain proposed by the Homeownership Protection Program Joint Powers Authority. The letters signatories include organizations representing banking, finance, mortgage investors, REALTORS, housing policy, title, consumer mortgages, community banking and home building, among others.
Update: 6.19.12: Today, the County of San Bernardino Board of Supervisors will vote on an amended contract that would allow the JPA to move forward. This vote was prompted by Hesperia's rejection of the JPA at its June 7th Council meeting. IVAR has drafted and delivered a letter requesting that the Board of Supervisors further amend the contract with a safeguard that would require that the JPA board of directors bring a completed plan and program back to the member jurisdictions for approval. CLICK HERE TO VIEW THE LETTER.
Update: 6.7.12: The Hesperia City Council voted 3-2 to reject membership in the Joint Powers Authority. The Council members who voted to reject the issue raised a series of concerns and questions that previous councils had largely glossed over. The vote means that the County, Ontario and Fontana will need to consider a revised contract before proceeding with the JPA. We anticipate that San Bernardino County will consider an amended contract within the next two weeks.
Update: 5.8.12: On Tuesday, May 8th, IVAR representatives and members spoke at the City of Fontana Council Meeting to oppose its joining a joint powers authority designed to use a radical and ambitiously-reformulated notion of eminent domain to take control of private mortgages. The plan, which was approved, arrived at Fontana with virtually no details, no advance public discussions or any publicly disclosed due diligence.
The council proceeded to approve the item over the objections while declining to address virtually any of the content of the concerns raised by IVAR's CEO, Government Affairs Director, President and several members.
Why IVAR Opposes This Program:
This program seeks to use government power to break private contracts while rewarding one group of investors at the expense of another group. The net result is a broad-based expansion of government power that would threaten basic mortgage lending in our region by making it clear that lenders who fund home loans in the participating regions no longer have property rights.
Lending and access to affordable mortgages makes homeownership possible for the vast majority of residents in the Inland Empire. This effort would fundamentally change the relationship between lenders and borrowers by introducing government as a third party capable of replacing the lender at any time by purchasing assets at below market value. While that sentence is, on its face, unconstitutional, the plan proposed by a private firm through the Joint Powers Authority would seek to dodge the constitutional requirement of fair value compensation through a series of assumptions designed to systematically lower the price that government pays for assets when it forces individuals or institutions to sell.
Furthermore, much of the financial rewards of forcing the sale of property at below market value would be delivered to private investors who would benefit from an unprecedented government incursion into private contracts.
A number of groups, institutions and individuals are now taking action to oppose this plan, including representatives of the financial industry, property rights advocates, REALTORS from throughout this region, advocates of limited government and others.
For information on joining IVAR’s opposition to this program, please contact Government Affairs Director Paul Herrera at firstname.lastname@example.org.
Media and Blogosphere Coverage: