Proposal Would Let Cities Take Over Underwater Loans
A San Francisco investment firm wants cities to use the doctrine of eminent domain to help struggling homeowners. Eminent domain allows governments to take private property and compensate the owners, when the property is needed for a public good such as new roads or housing. Graham Williams, CEO of Mortgage Resolution Partners, says local governments could use the same argument to seize private loans, if judges agree that rescuing homeowners who owe more than their houses are currently worth is a public good. "The US residential housing market is unlikely to improve any time soon without a solution to millions of homeowners that are under water," Williams said. "Eighteen percent of underwater mortgages that were current in paying a year ago have now defaulted."
The scheme would only apply to the 10 percent of borrowers with private loans that aren't federally guaranteed. They'd also have to be up-to-date on their payments, but would then get their loans restructured to lower the amount they owe. Williams' firm would receive a fee for managing the process.Lenders say the plan could actually make it harder to get loans and make them more expensive, because it would undermine the value of home mortgages as investments. San Bernadino County and the cities of Ontario and Fontana are considering the plan.