The Richmond, Calif., city council is pursuing a plan to use the city’s power of eminent domain to force bondholders to sell underwater loans, allowing homeowners to restructure their mortgages. And it's not surprising that investor groups continue to be fundamentally opposed to such actions and continued to speak out against the practice at the ABS Vegas conference currently underway in Las Vegas.
Mayor Gayle McLaughlin has led the charge toward a partnership with San Francisco investment firm Mortgage Resolution Partners to buy 624 city residents’ mortgages that are underwater, or that owe more money than the home is currently worth.
Other cities in areas still suffering through this housing recovery have considered it, as well. North Las Vegas, for example, rejected the notion.
Will eminent domain be an issue in other regions?
Scott Simon, a former partner with PIMCO, says despite the good-sounding intentions, this is theft, plain and simple, and it hurts the very middle class that it supposedly helps.
“MRP and Richmond are stealing,” Simon said. “It’s their 401ks and pension plans, firemen and teachers retirements, not some fatcat Wall Street investor that they’re going after. And it will hurt investment and lenders. Why would you lend money in a place where government can come in and take it?”
Joseph Buonanno, partner, Hunton & Williams, said he doesn’t think it’s a viable solution.
“It’s hard to achieve an eminent domain result that is appealing and could be done in a way that could make a difference,” he sad, shaking his head. “Impractical. Too many issues that need resolution for it to be successful to achieve enough of them to be worthwhile.”