San Bernardino County and two of its cities abandoned a plan that would use eminent domain to seize troubled mortgages and write down debt for homeowners.
A Joint Powers Authority that the county and the cities formed last year to study the idea voted unanimously on Thursday to shelve the proposal. Greg Devereaux, county chief executive and chairman of the authority, said the group decided to give up on the idea due to a lack of public support.
“We are taking that off the table," Devereaux said Thursday.
The board did vote to begin searching for other plans from outside contractors that would help underwater homeowners in the county and the two cities, Ontario and Fontana. The authority was created to consider the eminent domain plan proposed by the San Francisco investment firm Mortgage Resolution Partners.
The decision by the authority comes as a blow to the idea, given that it first caught national attention in hard-hit San Bernardino. Eminent domain is usually used to seize land — not loans — to serve the public good, as when local governments seize blighted properties.
The plan pushed by Mortgage Resolution Partners and considered by the Inland Empire communities as well as other municipalities would have been the first widespread attempt at using eminent domain to take over residential mortgages. The plan had called for local governments to seize control of underwater mortgages from investors and pay those investors less than face value. Then the governments would have created new loans for the homeowners based on current value.
Steven Gluckstern, chairman of Mortgage Resolution Partners, said in an interview that he was disappointed by the board’s decision. But he added that his group was in discussions with more than 30 other jurisdictions across the country and he was confident that one of them would probably enact the plan during the first three months of this year.
It is a bump in the road, but this is a marathon and we have had lots of conversations,” Gluckstern said. “You’d like your first guy to have gotten there, but maybe he drops out of the race.”
Ever since the idea was floated in San Bernardino last year, advocates of the mortgage and investment industries have called the plan an overreach that would nullify valid contracts and hurt the local housing market. The result would be protracted litigation, a surge in mortgage rates and a tightened market for borrowers with less-than-perfect credit, critics have said.
One of the groups opposed to the plan is the powerful Securities Industry and Financial Markets Assn., or SIFMA.
“We are encouraged to hear that the county has decided it will not pursue use of eminent domain to restructure mortgages," Timothy Cameron, managing director and head of SIFMA’s Asset Management Group, said in a statement Thursday. "As SIFMA has said, the unprecedented, potential use of eminent domain would cause severe damage to struggling housing markets and is likely unconstitutional on its face. We are pleased that the county has recognized these risks and decided to move in other directions.”