Calif. Lt. Gov. Gavin Newsom is asking the U.S. Attorney General's Office to review the actions of some members of the mortgage industry and federal agencies who Newsom claims are trying to thwart a proposal to have local governments in areas hardest hit by the subprime mortgage crisis use eminent domain to purchase underwater mortgages held in private label securitizations.
In a news release today, Newsom said members of the financial sector are threatening to redline communities in California considering the proposal by San Francisco-based Mortgage Resolution Partners.
"I am most disturbed by the threats leveled by the mortgage industry and some in the federal government who have coercively urged local governments to reject consideration of any proposal that would exercise the powers constitutionally granted local governments to use eminent domain to help stern the intractable mortgage crisis in America," Newsom said in a letter addressed to U.S. Attorney General Eric Holder and Acting Assistant Attorney General Joseph Wayland.
San Bernardino County is furthest along in discussions with the investment and has formed a joint powers authority, or JPA, with the cities of Fontana and Ontario to consider the propsoal and any others offering a potential solution to the county's housing crisis. The next meeting of the JPA will be held on Oct. 25.
Mortgage Resolution Partners is proposing to have local government use eminent domain to acquire underwater mortgages held in
private label mortgage securitizations -- loans that are held in trusts but bundled and sold in bulk to private investors. Mortgage Resolution Partners would recruit investors to fund the eminent domain process and the county, once securing the loan notes, would modify the loans to current market value for homeowners.
Roughly 150,000 homeowners in the county own more on their homes than what they are currently valued at.
The proposal has received fierce opposition from the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac, the Securities Industry and Financial Markets Association and 25 other trade organizations representing the real estate and lending community.
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