San Bernardino County, Calif., is considering using eminent domain to seize ownership of loans of underwater borrowers, Mortgage Daily reported June 19. The county, along with the California cities of Ontario and Fontana, believes the move could help stem the mortgage crisis.
San Bernardino County, which has one of the highest foreclosure rates in California, is in talks with Mortgage Resolution Partners, a group of venture capitalists looking to help the county acquire the loans. Once acquired, the loans would be restructured to reflect the homes’ current market values, which in turn could help homeowners lower their monthly payments and possibly regain equity in the properties.
“It is the first realistic opportunity, in bulk, to lower the amounts that people owe on their mortgages, which would be a tremendous benefit to the homeowners,” John Husing, chief economist for the Inland Empire Economic Partnership in San Bernardino, told Mortgage Daily.
Eminent domain typically is used to seize private property for neighborhood revitalization or major infrastructure projects, but in this case it would be used to seize private-label mortgage-backed securities.
While Mortgage Resolution Partners would help the county find private investors to finance eminent domain, the county would hold control of the loans.
According to Mortgage Daily, 150,000 homeowners in San Bernardino County are underwater on their mortgages, and 20 percent of those are held in private-label MBS. Another 50 percent are held by Fannie Mae or Freddie Mac, while 30 percent are held by banks.