A company with a unique but controversial approach to help underwater homeowners refinance their mortgages using eminent domain will pitch the North Las Vegas City Council on the plan Wednesday evening.
Mortgage Resolution Partners has spent the past year meeting with local governments in states hit hardest by the housing crash to present its plan that would use private money to buy distressed mortgages and help homeowners reduce the amount of principal owed while staying in their houses.
The municipal government would serve as the middleman in the process, using its power of eminent domain to seize the mortgages from trusts that own the mortgage-backed securities. Once the mortgage is refinanced and sold again, the city would receive a small fee for its troubles.
Such use of eminent domain has riled bankers nationwide, who said lending would be discouraged anyplace where eminent domain was used in this manner.
"This would be a taking of property rights of investors in the mortgage," said Bill Uffelman, Nevada Bankers Association president. "If I was writing mortgages that somebody could take away from me at some point in the future, I'd be very concerned."
Mortgage Resolution Partners emphasizes that the process would be "voluntary and consensual" and that eminent domain would be a last resort to acquire any property.
Nevada representatives for Mortgage Resolution Partners -- which include prominent Las Vegas attorney Byron Georgiou, developer Michael Saltman and Daniel Greenspun, a member of the family that owns the Las Vegas Sun -- argue the benefits are more than monetary. The program would help stabilize housing markets, prevent blight and most importantly keep homeowners in their house with an affordable mortgage payment.
"If you reduce principal, you reduce defaults, you reduce foreclosures. You save money for everybody," said John Vlahoplus, founder and chief strategy officer for Mortgage Resolution Partners. "This is to try and make something happen where nothing's happening right now."
As an example, Georgiou said a house carrying a $300,000 mortgage but with a market value of only $200,000 would be bought by the city using private funding for less than its market value, in this case $150,000. The below-market value payment would provide cash to any previous mortgage owners and save them any potential losses from the property going into foreclosure.
The city-owned mortgage would then be refinanced with a higher loan, in this case $190,000, leaving the homeowner with a lower principal owed and some equity in the house.
The $40,000 spread between the purchase price and the new loan price would be used to cover costs and to pay back the city and the investors. The city would receive a fee of about 5 percent of the new loan value, Mortgage Resolution Partners investors also would receive a return on their investment. Additionally, Mortgage Resolution Partners would receive a flat fee of $4,500 per transaction.
The representatives have been meeting with officials in each of Clark County's local municipalities over the past months. The city of North Las Vegas will be the first to consider a formal agreement engaging Mortgage Resolution Partners' services.
North Las Vegas City Manager Tim Hacker said Wednesday's presentation would be a chance for the council and residents to learn more about the program.
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