The plan calls for the county to buy mortgages at a steep, but fair, discount to its face value, and then to offer the homeowner a new mortgage that reflects much, though not all, of that discount. (Fees and costs would be paid for by the spread.) The money to buy the mortgages would come from investors; indeed, Mortgage Resolution Partners is in the process of raising money.
Mr. Nocera doesn't really explain adequately, in my view at least, why if these purchase prices is so "fair," the eminent domain power of government needs to be brought to bear on the sellers. Why not just make it a voluntary transaction between the new investors and the current mortgage owners (not the homeowners but the investor-owners of the securitized mortgages), which the sellers would be free to refuse if they did not think the price was as "fair" as the prospective buyer or Mr. Nocera thinks it is?
Mr. Nocera accuses representatives of the mortgage owners — eighteen groups, including the American Bankers Association, the Securities Industry and Financial Markets Association, the Investment Company Institute, the Association of Mortgage Investors, of writing a "threatening" letter. I read the letter and could not discern any threats. Its text is as follows:
The eighteen organizations listed above write this letter to express our strong objection to the Joint Powers Agreement (the "Agreement") that contemplates the implementation of a so-called"Homeownership Protection Plan." Based on publicly available information on the Agreement, we are very concerned that the good intentions of the Board of Supervisors will instead result in significant harm to the residents the Agreement intends to help.
The Agreement proposes the use of eminent domain to seize mortgage loans from private investors through condemnation, in order to force a restructuring of the mortgage. We believe that the contemplated use of eminent domain raises very serious legal and constitutional issues. It would also be immensely destructive to US mortgage markets by undermining the sanctity of the contractual relationship between a borrower and creditor, and similarly undermining existing securitization transactions. Such an action would likely significantly reduce access to credit for mortgage borrowers in the San Bernardino area and other areas that undertake similar actions.
We expect that credit availability for home purchases and refinancing of all San Bernardino loans would be significantly compromised if this plan would be put into effect. This impact would be borne by those very homeowners and communities that the proponents of this plan claim they are trying to help. If eminent domain were used to seize loans, investors in these loans through mortgage-backed securities or their investment portfolio would suffer immediate losses and likely be reluctant to provide future funding to borrowers in these areas. It is essential to remember that investors in mortgage-backed securities channel the retirement and other savings of everyday citizens through their investment funds. This program may cause loans to be excluded from securitizations, and some portfolio lenders could withdraw from these markets. In other words, this program could actually serve to further depress housing values in the county by restricting the flow of credit to home buyers.
The above represents our initial observations based upon the publicly available information on the proposal. We are aware that additional information is being selectively shared on a non-public basis, which concerns us and limits our ability to comment fully on the program. We recognize the County's intention to assist homeowners who are facing financial difficulties, but inappropriately, and possibly unconstitutionally, using the power of eminent domain to abrogate a contractual agreement between borrower and creditor would have far greater and lasting negative effects on existing and future homeowners.
Please do not hesitate to contact any of our organizations for more information or further discussion. Thank you.