A proposed eminent domain plan in Richmond, Calif., is under fire, with mortgage and investments professionals publicly denouncing it as short-sighted and dangerous.
The proposal would allow local city officials to seize mortgages using the power of eminent domain. In turn, officials would adjust the existing loan terms for troubled borrowers.
The plan gained enough of a foothold to cause a stir at the Mortgage Bankers Association and the Securities Industry and Financial Markets Association (SIFMA) this week.
"The program is a short-term solution for a few underwater borrowers that will have severe negative long-term costs for every homeowner in the city," said David Stevens, CEO of the MBA.
"Mortgages in Richmond will become more expensive, making neighboring cities more desirable for prospective home buyers, which will hold down home values for everyone in Richmond. In short, the program is ill-advised and likely unconstitutional and will add to Richmond’s problems rather than solve them," he explained.
SIFMA CEO Judd Gregg also released a statement, declaring the plan a detriment to investors and homeowners.
"The action being taken by the city of Richmond will hurt many more homeowners both within the city and around the country than it is alleged to help. It will raise borrowing costs for numerous homebuyers and could end up restricting credit availability," Gregg said.
"The practical effect of this proposal will be that individual investors, who put their money into pension funds and other investment vehicles, making mortgage money available to homebuyers, will see their assets and savings arbitrarily, and we believe unconstitutionally, taken. This will not help expand mortgage credit availability in this country."
Eminent domain first gained public attention when the firm Mortgage Resolutions Partners tried to get San Bernardino County officials to adopt a similar plan in the California county.
Lawmakers in Washington D.C. have already filed legislation in the hopes of preventing cities and counties from adopting eminent domain as a housing initiative.