More than seven months after announcing it was entertaining a proposal to use eminent domain to acquire underwater mortgages to help stabilize the local housing market, a San Bernardino County joint powers authority on Thursday rejected the proposal.
The proposal, rolled out by San Francisco investment firm Mortgage Resolution Partners last summer, intrigued cities and counties across the nation hardest hit by the subprime mortgage crisis and garnered national opposition by the real estate and mortgage industries, which joined forces in an effort to stop the proposal in its tracks.
But it was potential risk and a lack of community support, not threats of litigation and the cutting of credit to homebuyers in San Bernardino County, that prompted the Homeownership Protection Program -- the joint powers authority (JPA) composed of the county and the cities of Fontana and Ontario -- to back away from the proposal, said Greg Devereaux, chief executive officer of both the county and the JPA.
"It introduced risk into the market that we couldn't quantify," Devereaux said following Thursday's meeting. "My conclusion was that I was not in a position and didn't have the knowledge to asses that risk, therefore, it had to be a community decision."
But community support for such a program never materialized.
"It wasn't a decision a board like this should make unless there was overwhelming support in the community for going forward with that and assuming that risk," Devereaux said. "That support never materialized. Had it, maybe it would be a different discussion, but it didn't."
The five-member JPA board unanimously voted to solicit proposals from organizations and/or individuals on ways the county could stabilize its housing market and thwart foreclosures, but took the proposal by Mortgage Resolution Partners off the table.
A formal request for qualifications will soon be going out, with responses expected in the next four to six weeks, Devereaux said.
Representatives of Mortgage Resolution Partners, who have traveled the country pitching their idea to other cities and counties over the last seven months, opted not to attend Thursday's meeting after learning the JPA would not be considering their proposal.
"We are disappointed that the JPA in San Bernardino chose not to explore all options to prevent mortgage foreclosures in their jurisdiction, a jurisdiction where roughly two thirds of the (private label securities) mortgage holders are currently underwater and some one third are already in default," said Steven Gluckstern, chairman of Mortgage Resolution Partners, in a statement Thursday. "JPA members have publicly stated previously that to not fully explore all options would be irresponsible."
Gluckstern said he and representatives from his firm are currently in discussions with two dozen other cities or counties across the nation, including cities in San Bernardino County.
One of those cities is a member of the joint powers authority -- Fontana. Mayor Acquanetta Warren on Thursday said the city, where 49 percent of its homeowners owe more on their homes than they are currently valued at, is considering the proposal separately from the JPA.
"We continue to believe that it would be irresponsible for the city of Fontana to not examine all options available to strengthen our community by helping our underwater homeowners," Warren said. "While the JPA today apparently decided to limit the scope of the options they would consider, it is our intention to go forth aggressively to help find local solutions to Fontana's mortgage and foreclosure crisis."
More than 150,000 homeowners in the county owe more on their homes than they are currently worth.
Mortgage Resolution Partners has proposed targeting underwater loans held in private label securities, loans that are held in trust but bundled and sold to Wall Street instead of being held by a bank or mortgage lender.
Under the proposal, the county would seize the loans using eminent domain, a process traditionally used by government to acquire private property, at fair market value, via a court order for redevelopment purposes.
Once acquired, the underwater loans would be modified to reflect the current market value of the properties, lowering monthly mortgage payments and allowing people to stay in their homes. The loans would then be sold to hedge funds, pension funds or other investors, with the proceeds being used to pay off outside financiers who fund the eminent domain process.
The JPA has also agreed to collaborate with several real estate and mortgage servicers on a campaign to inform and educate both local government and homeowners on existing mortgage assistance programs and promoting their use.
Among the organizations the JPA has agreed to partner with include the Inland Valleys Association of Realtors, the Securities Industry and Financial Markets Association (SIFMA), the Association of Mortgage Investors (AMI), the California Mortgage Bankers Association (CMBA) and the California Bankers Association (CBA). All the organizations joined forces in opposition to the eminent domain proposal.
"All we're trying to do is promote coordination, cooperation and communication between the various interested parties," said Timothy Cameron, managing director of the Securities Industry and Financial Markets Association. "There's no simple solution to the problem because the circumstances surrounding each individual's case is a little different."
Paul Herrera, government affairs director for the Inland Valleys Association of Realtors (IVAR), said his group's biggest concern was eminent domain, if utilized to acquire and renegotiate underwater loans, having a chilling effect on the housing market.
"What happens in six months when someone's trying to buy a home? Trying to get a loan," Herrera said.
He said he was pleased with the JPA's decision to work with the real estate and mortgage groups in finding a middle ground and achieving the same goals.
"We have to creative about how that works -- how we look for things that make a difference without having a negative reaction," Herrera said. Yucaipa resident Bobby Duncan supports any program or effort to assist him in staying in the home he has lived in for the last 16 years with his wife, which he fears he may lose to foreclosure.
Duncan owned three printing shops and had 12 employees before the economy tanked in 2008, knocking the wind out of him and throwing him into a panic.
Now, like so many Americans, Duncan, who is also a Yucaipa City Councilman, faces losing his home.
"I've been trying to modify my loan and I'm telling you it's been impossible," Duncan told the JPA board Thursday. "There's a good chance I'll lose my house. I will do everything I can to support this initiative and this cause."
Hispanic #1 Breaking News for Entrepreneurs, Professionals and Small Business Owners - HispanicBusiness.com
OCTOBER 30, 2014
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