An article in Bloomberg today highlighted a plan where municipalities would use their eminent domain powers to condemn all the mortgages in their county that are underwater, pay a reduced wholesale price to the mortgage holders (i.e. the Federal government, taxpayers, and other investors), and then refinance the homeowners into new mortgages.
The City of Chicago will hold a hearing over using eminent domain to seize underwater mortgages. The idea first came under consideration in San Bernardino County, calif. venture capital firm mortgage resolution Partners is pitching the idea to several cities across the country. Using investor dollars, local governments would seize performing mortgages in negative equity, reduce the principal for the borrower and refinance it into a government-backed loan.
Houses across the country are underwater, and San Bernardino County is trying something new: eminent domain. The county would use its power to seize mortgages and restructure them.
El Monte is considering a novel and controversial plan to take over underwater mortgages using its eminent domain power — an idea highly unpopular among representatives of the financial industry.
(Crain’s. in Cook County with mortgages were underwater in the first quarter, representing nearly 33 percent of all homes with mortgages, according to a recent report from research firm CoreLogic..
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Abandons Eminent Domain Mortgage Plan" Alejandro Lazo, LA Times, January 24, 2013, www.latimes.com. Recent other cities reported to be considering the plan are Chicago, Illinois and Brockton, Massachusetts. See "Chicago Considers Eminent Domain to Seize Underwater Mortgages" Jon Prior, Housing Wire, July 7, 2012,
And, once again, Chicago has managed to catch our attention with its recent decision to consider a plan to "use the power of eminent domain to purchase underwater mortgages out of securitized.
To address widespread negative equity in their local communities, at least 15 cities and counties are considering using eminent domain to seize underwater homes from lenders and investors and lower.
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· Chicago Considers Eminent Domain to Seize Underwater Mortgages HousingWire | July 27, 2012 The idea first came under consideration in San Bernardino County, Calif. Venture capital firm Mortgage Resolution Partners is pitching the idea to several cities across the country.