A hard-hit housing community in San Bernardino County. (Katie Falkenberg / For The…)
A plan to seize and restructure troubled mortgages in San Bernardino County using eminent domain has drawn big Wall Street players to the halls of local government once again.
The cities of Ontario and Fontana, in partnership with the county, are exploring using private funds to acquire mortgages that are "underwater," in which the homes wouldn't sell for enough money to pay off the loans. Under the Homeownership Protection Program, the loans acquired by government authority would be restructured, lowering the amount owed, with the intent of helping the owner keep the home.
Tim Cameron, a representative of the Securities Industry and Financial Markets Assn., appeared on Thursday before the second meeting of the Joint Powers Authority, formed by the county and the two cities to explore the idea in public.
Cameron, who heads the association's asset management group, reiterated his displeasure with using eminent domain to condemn underwater mortgages, saying that it could cause more harm than good for borrowers in the region and that it also raises serious legal and constitutional concerns, according to his prepared comments.
In his comments, Cameron suggested that the county focus on other foreclosure prevention programs already in existence. Moving forward with an eminent domain plan would lead to lengthy litigation, he warned.
"If the problem that is trying to be solved is the result of depressed property values, the solution should positively impact property values, not exacerbate declines or curtail the willingness of investors to invest in the county's housing and its residents," he said.
Cameron pointed to Keep Your Home California as one program that could more directly help homeowners facing foreclosure. That program, which is run by the state’s Housing Finance Agency and a nonprofit group, is run out of nearby Riverside and oversees $2 billion in federal funds. The program has struggled to distribute that money, The Times has previously reported.
Members of the authority voted Thursday to move forward with a request for proposals. The authority has said it will consider a variety of options on how best to proceed to help homeowners in those two cities and the county.
The authority also agreed to a contract to employ the firm of McKenna, Long & Aldridge to assist it.
The eminent domain plan was first proposed to the county by a San Francisco firm named Mortgage Resolution Partners. The cities of Elk Grove and Sacramento are considering similar proposals. The city of Berkeley is also reportedly interested, as is Suffolk County in New York.
Earlier in the week, the Chicago City Council held its own hearing on the idea, with Mayor Rahm Emanuel speaking out against it and actor John Cusack attending in support of the proposal.
San Bernardino is widely considered to be the furthest along in considering the proposal and was the first approached by investors interested in the idea, because of the county's size and its large number of underwater mortgages.
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