| SAN FRANCISCO, Sept 4
SAN FRANCISCO, Sept 4 The city council in North
Las Vegas, Nevada, on Wednesday rejected a plan to use eminent
domain if necessary to help refinance "underwater" mortgages, an
idea the mortgage industry opposes at a time when property
markets are recovering.
The council voted 5-0 against the plan proposed by Mortgage
Resolution Partners (MRP) for a partnership with North Las Vegas
to buy the mortgages or seize them through eminent domain, a
move critics said would unsettle the market for private-label
mortgage-backed securities and push mortgage interest rates up.
City Councilman Wade Wagner questioned the San Francisco
investor group's proposed use of eminent domain for acquiring
delinquent and performing underwater loans. A mortgage is under
water when its unpaid balance is more than the market value of
its property, a common problem in Nevada's third-largest city.
"They want the performing mortgages they assume will default
two, three, four years down the road. That's a mighty big
assumption with property values climbing," Wagner told Reuters.
Eminent domain allows governments to seize private property
for a public purpose.
MRP's plan for North Las Vegas was similar to its plan for
Richmond, California, another city hit hard by the mortgage
crisis. But Richmond may back MRP's plan, which has prompted a
lawsuit by investors holding mortgages targeted by it. In
Richmond's case, eminent domain would be invoked in an effort to
ward off blight, targeting more than 600 mortgages to prevent
borrowers from defaulting on them, according to its leaders.
MRP has proposed that eminent domain can be used if holders
of underwater mortgages do not sell them to cities at a discount
pegged to their properties' current value. Then the loans can be
refinanced and made less costly for their borrowers, MRP says.
In a report for North Las Vegas, MRP said the city risks
2,500 foreclosures from underwater mortgages in private-label
mortgage securities and offered to help acquire and refinance
loans from a group of more than 3,900 mortgages.
MRP says it aims to help housing markets, but critics point
out it could earn $4,500 for each mortgage its refinances.
Earlier this year, San Bernardino County, California, and
the cities of Fontana and Ontario, declined a tie-up with MRP
after lobbying by financial institutions and local businesses.
A rebound in the housing market also helped block MRP in San
Bernardino County, said Paul Herrera, an official with the
Inland Valleys Association of Realtors: "That really destroyed
the argument that the housing market could only recover with
The median sales price for a home in California's Inland
Empire - San Bernardino and Riverside counties - rose 31 percent
to $262,000 at the end of the three-month period ended in June
from the same period a year earlier, Herrera said.
Home prices in North Las Vegas are also up. The median sales
price for all residential properties in the city rose 23 percent
to $142,500 from May through July from the same period a year
earlier, according to online real estate marketplace Trulia.
In Richmond, investors holding mortgages targeted by the
city are pressing a lawsuit through trustees Wells Fargo & Co
and Deutsche Bank AG to block the city from implementing MRP's
plan, which they say would make an illegal application of
The plan has also drawn fire from the Federal Housing
Finance Agency, which has warned it would direct Fannie Mae and
Freddie Mac to "limit, restrict or cease business activities"
where eminent domain is used to seize mortgages.