econscius

San Bernadino County to Seize Mortgages Using Eminent Domain

In Economy, Housing Bubble, Loan Forgiveness on July 5, 2012 at 5:00 pm

Threats to our rights not only come from Washington, they originate in city halls and county offices across the nation.  An example is a movement in several economically devastated California municipalities to use the power of eminent domain to seize not land, but mortgages.  The San Bernardino Board of Supervisors approved this action June 20, 2012.  [1]   Unemployment is as high as 30% in parts of San Bernardino County. [2]

Regardless of the merits or demerits of the specific proposal, this most certainly is NOT what eminent domain is intended for.

This odd interpretation of a city’s right to condemn land needed for a public project (e.g. building an expressway) is to be used to go after the mortgage holders of vacant properties.  [2] Note it does nada to improve the properties nor does it get jobs for out-of-work borrowers.  It is simply to seize mortgages from the prior mortgage holder and shrink the loan balance to an amount determined by San Bernardino and its private-sector financial partner.

The obvious impact of this attack on long-standing property rights would be to make lending more dangerous.  This will increase mortgage rates and make lenders less likely to extend mortgages, both of which have the long-term impact of making mortgages harder to come by, especially for the poor.  Which would seem to be a perverse effect of the original attempt.

Who came up with this hair-brained idea?  Someone with their hand in the cookie jar.  A couple of San Francisco investment banks and venture capital fund devised the idea and just happen to profit from the transactions (the Mortgage Resolution Partners firm refinances the seized mortgages for municipalities).  Roger Altman, the chairman of one of the investment banks, Evercore, just happens to be a former Clinton Administration official who also raises funds for President Obama. [2]

Let’s hope this misguided attack on property rights is nipped in the bud by the courts.

 

[1] http://www.latimes.com/business/money/la-fi-mo-eminent-domain-20120620,0,4970444.story

[2] http://online.wsj.com/article/SB10001424052702303933404577505013392791018.html?KEYWORDS=cities+california+mortgages

 Pictures from Wikipedia Commons.

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